Liens on a VA Loan
Liens on a VA Loan?
Second mortgages, solar financing, down-payment assistance, government programs, tax liens, PACE assessments and other liens do not automatically mean you cannot refinance. The important question is what type of lien you have and whether it can remain behind the new VA mortgage or must be paid off.
Many homeowners do not even realize that a second lien or recorded obligation exists until the title work is completed for their refinance.
The key VA rule is that the new VA mortgage generally must be secured in first-lien position.
If another loan, assistance program, solar obligation, judgment, assessment, or other lien is attached to the property, we first determine exactly what it is and whether that lienholder will allow the new VA mortgage to remain in first position.
What Is a Lien?
A lien is a legal claim or security interest connected with your property. It can arise because you borrowed money against the property, financed an improvement, received homebuyer assistance, failed to pay an obligation, or participated in certain government or energy programs.
Liens are important during refinancing because the title company and mortgage lender must establish which creditor has priority against the property.
If another lien is going to remain against the property after the refinance, that lien normally must remain legally behind the new VA mortgage.
The process of allowing the new first mortgage to move ahead of an existing second lien is called subordination.
The existing lienholder signs a subordination agreement confirming that its lien will remain junior to the new VA mortgage.
Not every lienholder or assistance program will agree to subordinate.
When subordination is unavailable, the lien may have to be paid in full and released before or at closing.
IRRRL vs. Cash-Out: Liens Are Handled Very Differently
VA Streamline / IRRRL
An IRRRL can refinance only the existing VA first mortgage.
IRRRL proceeds cannot be used to pay off a second mortgage or another lien.
If another lien will remain, its holder must generally agree to subordinate so the new VA mortgage replaces the existing VA loan in first position.
VA Cash-Out Refinance
A VA Cash-Out refinance provides much greater flexibility for recorded liens.
VA permits a Cash-Out refinance to refinance existing mortgages and other indebtedness secured by recorded liens.
This can include second mortgages, mechanics liens and other qualifying recorded liens, subject to appraisal, qualification, loan-to-value and other VA and lender requirements.
An IRRRL Cannot Simply Roll Your Other Liens Into the New Loan
This is an important distinction.
If you have an existing second mortgage, solar lien, assistance lien, or another recorded obligation, the IRRRL generally cannot increase its proceeds simply to pay that obligation off.
The lien normally must either subordinate and remain behind the new VA mortgage or be resolved using another permissible source before closing.
Common Liens We May Find on a Property
| Type of Lien | Common Example | What May Need to Happen |
|---|---|---|
| Second Mortgage | Traditional second mortgage or fixed home-equity loan | The lienholder may agree to subordinate for an IRRRL. If it cannot or will not subordinate, payoff may be required. An eligible VA Cash-Out refinance may potentially pay the recorded lien off. |
| HELOC | Home Equity Line of Credit | The HELOC lender may require the line to be frozen, reduced, modified, or subordinated. Some lenders charge a subordination fee or require updated underwriting. |
| Solar Financing | Solar-panel loan or equipment financing | Solar financing may involve a mortgage lien, UCC fixture filing, or other security interest. Depending on how it was structured, the creditor may need to subordinate, temporarily terminate and re-record its filing, or be paid off. |
| Solar Lease or PPA | Solar lease or power-purchase agreement | These are not always traditional mortgage liens, but recorded agreements or UCC filings may still affect title. The solar company may need to consent, subordinate, transfer, or otherwise document its interest before closing. |
| Down-Payment Assistance | State, county, city, employer or housing-agency second mortgage | Some programs allow subordination. Others become due when the first mortgage is refinanced and therefore must normally be repaid unless the program specifically approves another arrangement. |
| PACE Assessment | Property Assessed Clean Energy financing | PACE obligations can be collected through property taxes and secured as special assessments. Their lien priority can create complications for a VA mortgage. Depending on the program and lien structure, payoff or other resolution may be necessary. |
| VA Partial Claim or Assistance Lien | Certain VA loss-mitigation or prior mortgage-assistance balances | These may exist as subordinate obligations even though the Veteran's normal first mortgage is current. Current VA servicing and payoff requirements must be reviewed before refinancing. |
| Tax Lien | Federal, state, county or other recorded tax obligation | Depending on lien priority and the taxing authority, the lien may require payoff, release, discharge, an approved payment arrangement, or formal subordination. |
| Judgment Lien | Recorded court judgment attached to real property | The title company and lender must determine whether the judgment attaches to the property. Payoff, release, satisfaction or other approved resolution may be required. |
| Mechanics or Contractor Lien | Unpaid contractor, builder, roofer or construction claim | A recorded mechanics lien may need to be paid and released. VA Cash-Out rules specifically allow refinancing recorded liens such as mechanics liens when all requirements are satisfied. |
| HOA or Condo Lien | Unpaid homeowners-association or condominium assessments | Delinquent assessments can sometimes result in a recorded lien. The account may need to be brought current and the lien released before the lender and title company can close the new mortgage. |
Homeowners often say they have a "solar lien," but solar agreements can be structured several different ways.
You may own the panels outright, have a separate solar loan, have a UCC filing against the equipment, lease the system, participate in a power-purchase agreement, or have financed the improvements through another property-related program.
We need to know which structure you have before determining what is required for the VA refinance.
In many cases the solar creditor can provide a subordination, temporary release, termination, or other documentation that allows the mortgage refinance to proceed.
If the creditor will not allow the VA mortgage to obtain the required lien position, payoff may be necessary.
Many state and local homebuyer programs provide down-payment or closing-cost assistance as a deferred second mortgage.
Because there may be no interest or monthly payment, homeowners sometimes forget that the assistance remains secured against their home.
When they later refinance, that assistance lien appears on the title report.
Some programs permit the assistance loan to remain and subordinate behind the new first mortgage.
Other programs specifically make the entire assistance balance due when the first mortgage is refinanced.
Florida Assistance Programs Are a Good Example
Florida has several programs that can create a second mortgage or property-related obligation that becomes important when refinancing.
Florida Hometown Heroes
Hometown Heroes down-payment and closing-cost assistance is provided as a 0% interest, non-amortizing deferred second mortgage.
Under the current program rules, the assistance becomes due and payable when the first mortgage is refinanced, among other triggering events, unless otherwise approved by Florida Housing.
That means a homeowner should not assume the Hometown Heroes second mortgage can simply remain behind a new VA refinance.
Florida Assist
Florida Assist is another example of down-payment assistance recorded as a deferred second mortgage.
Its unpaid balance generally becomes due when the property is refinanced, sold, transferred, the first mortgage is satisfied, or the borrower no longer occupies the property as required by the program.
Florida PACE Financing
PACE financing is different from a normal second mortgage.
It is generally repaid through a property-tax assessment and can create a recorded lien associated with the property.
Florida law specifically requires disclosures warning homeowners that refinancing may cause the mortgage lender to require the remaining PACE financing to be paid off.
VA also requires the VA-guaranteed mortgage to maintain the required first-lien position. A PACE obligation therefore needs to be reviewed carefully before attempting a VA refinance.
PACE Liens Can Be More Complicated Than a Normal Second Mortgage
A traditional second mortgage may simply sign a subordination agreement.
A PACE obligation can be tied to a special property assessment and may have statutory lien rights that are different from an ordinary home equity loan.
VA has specific rules governing properties with PACE obligations. The full outstanding PACE obligation cannot remain as an enforceable lien superior to the VA-guaranteed mortgage.
If the existing PACE structure cannot satisfy the VA first-lien requirement, the obligation may have to be paid or otherwise resolved before the VA refinance can close.
VA Partial Claims and Prior Mortgage-Assistance Liens
Another lien a Veteran may discover is connected with prior mortgage payment assistance or loss mitigation.
The Balance May Exist Even Though Your First Mortgage Is Current
Certain VA assistance programs have used subordinate obligations to help bring or keep a Veteran's first mortgage current.
That amount may remain secured against the property and may need a payoff, release, subordination, or other treatment under current VA servicing rules when the home is refinanced or sold.
We can review the title information and determine which agency or servicer must be contacted for the applicable payoff or lien instructions.
Do not assume that you cannot refinance because you have another lien on the property.
We can work through the title and loan information to determine:
- Who currently holds the lien
- The current balance or payoff amount
- Whether the lien is actually attached to the real property
- Its lien priority
- Whether the creditor allows subordination
- What documents are required for subordination
- Whether the lien becomes due automatically upon refinancing
- Whether it can be paid through an eligible VA Cash-Out refinance
- Whether another financing structure would work better
How We Handle a Lien During Your VA Refinance
Subordination Can Take Time - Tell Us About the Lien Early
A lienholder may require an application, appraisal, credit information, title report, new loan documents, processing fee, or its own internal review before approving a subordination.
If you already know about a second mortgage, HELOC, solar financing, assistance loan, or other lien, tell us at the beginning of the refinance so the process can be started as early as possible.
An IRRRL cannot use its proceeds to pay off a second lien.
A VA Cash-Out refinance is different.
VA rules specifically allow Cash-Out refinancing of existing mortgages and other indebtedness secured by liens of record.
That can potentially include:
- A second mortgage
- A HELOC
- A mechanics lien
- Other qualifying recorded property liens
The transaction must still satisfy VA appraisal, occupancy, qualification, loan-to-value, net tangible benefit, lender and other applicable requirements.
If your VA refinance qualifies for a lower monthly mortgage payment, those monthly savings remain available to you after closing.
Some homeowners choose to apply that additional monthly cash flow toward other obligations, including balances that were not required to be paid through the refinance.
Refinancing also changes the timing between payoff of the old mortgage and the first regularly scheduled payment on the new mortgage.
Depending on the closing date, there may be a period before the first payment on the new mortgage becomes due.
These are not free or forgiven mortgage payments. Interest for the applicable period is still accounted for in the refinance.
Your existing mortgage servicer may be holding money in escrow for property taxes and homeowners insurance.
When the old mortgage is paid in full, federal servicing rules generally require the servicer to return any remaining escrow funds under its control within the applicable regulatory period, subject to permitted alternatives.
A new escrow account may then be established with the new mortgage for future property taxes and homeowners insurance.
The exact amount of any refund depends on the actual account balance and disbursements at payoff and cannot be promised in advance.
Once returned to you, those funds are generally your money to manage. But an anticipated escrow refund should not be used to represent that an unresolved lien required for closing has already been satisfied.
We Do Not Advertise "Two Free Mortgage Payments"
You may hear refinancing advertised as allowing you to "skip two payments."
VA specifically warns against presenting refinance payment timing this way.
What actually happens is that your old loan is paid off and the first payment date on the new loan is established according to the closing date and mortgage terms. Interest is still accounted for.
We can explain the actual payment dates and estimated escrow refund so you know precisely how the refinance may affect your short-term cash flow.
Examples
Example: Second Mortgage That Will Subordinate
You have a VA first mortgage and a $25,000 second mortgage.
You want an IRRRL to lower the VA interest rate.
If the second-mortgage lender approves subordination, the new VA mortgage can replace the old VA mortgage in first position and the $25,000 second mortgage can remain behind it.
Example: Assistance Loan Due on Refinance
You received down-payment assistance when buying your home and the program recorded a deferred second mortgage.
If that assistance agreement says the balance becomes due when you refinance, a simple IRRRL may not work unless the program grants an allowable exception or the balance is otherwise resolved.
Example: Solar Financing
Your solar company recorded a UCC fixture filing associated with financed panels.
We determine what the solar creditor requires to permit the new mortgage to close. Depending on the agreement, this could involve subordination, a temporary filing change, release, or payoff.
Example: Pay the Lien Through Cash-Out
You have sufficient equity and a recorded second lien that will not subordinate.
If you otherwise qualify, a VA Cash-Out refinance may potentially replace the first mortgage and pay the recorded second lien through the new transaction.
Common Questions About Liens and VA Refinancing
Can I refinance my VA loan if I have a second mortgage?
Potentially yes. For an IRRRL, the second mortgage generally must agree to subordinate behind the new VA mortgage. A VA Cash-Out refinance may potentially pay off the recorded second mortgage, subject to qualification and other applicable requirements.
Can an IRRRL pay off my second mortgage?
No. VA states that an IRRRL cannot use loan proceeds to pay another loan or lien besides the existing VA mortgage being refinanced. A second lien that remains must generally subordinate.
Can a VA Cash-Out refinance pay off my second mortgage?
Potentially yes. VA Cash-Out rules permit refinancing recorded liens, including second mortgages, subject to the appraisal, available equity, underwriting, loan-to-value and other applicable requirements.
Can I refinance if I have a HELOC?
Potentially. The HELOC lender may agree to subordinate behind the new mortgage. It may require the line to be frozen or modified and may have its own documentation and qualification process.
Can solar panels stop my VA refinance?
Not necessarily. The important issue is how the solar system was financed. A loan, UCC filing, lease, power-purchase agreement, or property assessment can each require different treatment. We first identify the financing structure and determine what documentation, subordination, release, or payoff is required.
What if my solar company will not subordinate?
If the solar creditor's interest prevents the new VA mortgage from obtaining the required lien position, another solution may be needed. Depending on the financing agreement and available equity, this might include payoff, release, restructuring, or a different refinance program.
What if I received government down-payment assistance?
We need to review the specific assistance program. Some deferred second-mortgage programs permit subordination. Others state that the assistance becomes due when the first mortgage is refinanced.
What happens to Florida Hometown Heroes assistance if I refinance?
Florida Housing currently describes Hometown Heroes assistance as a 0% non-amortizing deferred second mortgage that becomes due and payable upon refinancing of the first mortgage, among other triggering events, unless otherwise approved by Florida Housing.
What about Florida Assist?
Florida Assist is also recorded as a second mortgage. Current Florida Housing program information states that the unpaid balance becomes due upon events including refinancing of the property.
What is a PACE lien?
Property Assessed Clean Energy financing can be repaid through a special property assessment. Because it is connected with property taxes and can have special lien-priority rights, it must be reviewed carefully when obtaining a new VA mortgage.
Can a PACE balance have to be paid off when I refinance?
Yes, depending on the program, state law, lien priority, lender and VA requirements. Florida law specifically requires PACE disclosures warning borrowers that a mortgage lender may require the full financing balance to be paid when the property is refinanced.
Can a mechanics lien be refinanced with a VA loan?
An eligible VA Cash-Out refinance can potentially refinance a recorded mechanics lien. VA specifically identifies mechanics liens as an example of recorded liens that may be refinanced under Cash-Out rules.
What if I have a tax or judgment lien?
These require individual review. Depending on the creditor, lien priority and transaction, the lender or title company may require a payoff, release, discharge, approved payment arrangement, or subordination before closing.
Will I get money back from my old escrow account?
If money remains in the old escrow account after payoff and is under the servicer's control, applicable federal servicing rules generally require the remaining balance to be returned, subject to permitted alternatives. The exact refund cannot be guaranteed in advance.
Can I use my escrow refund to pay other bills or liens?
An escrow refund is generally the return of money that was already being held for your taxes and insurance. Once properly returned, those funds belong to you. However, a lien that must be resolved as a condition of closing generally cannot be left unresolved based only on an expected future escrow refund.
Do I really get to skip two mortgage payments?
A refinance can change the timing between payoff of the old mortgage and the first payment due on the new mortgage, but the payments are not simply free or forgiven. Interest is accounted for in the transaction, and VA warns lenders against advertising skipped payments as cash or a refinance benefit.
Have a Lien and Want to Refinance?
Tell us what lien you have - or let us help identify it. VA Help Center can review whether the lien may be subordinated, must be paid off, can potentially be included in a VA Cash-Out refinance, or requires another solution before closing.
REVIEW MY LIEN & VA REFINANCE OPTIONS Call 801-871-3739VA Help Center, LLC is a private mortgage company and is not affiliated with, endorsed by, or acting on behalf of the U.S. Department of Veterans Affairs or any other government agency.
Lien treatment depends on the type of lien, lien priority, creditor or program requirements, title findings, borrower qualification, loan type, property value, state law, lender requirements, and applicable VA regulations and guidance. Subordination, release, payoff, or refinance of any particular lien is not guaranteed.
An IRRRL generally cannot use loan proceeds to satisfy liens other than the existing VA loan being refinanced. Other liens that remain must satisfy applicable lien-priority and subordination requirements. An eligible VA Cash-Out refinance may refinance qualifying recorded liens, subject to applicable requirements.
References to escrow refunds describe the possible return of funds already held in an existing mortgage escrow account. The amount cannot be guaranteed in advance and is not cash received from home equity.
Refinancing may change the timing of mortgage payments, but mortgage payments are not free or forgiven. Interest and other applicable amounts are accounted for in the refinance.