Overview of refinancing to buy out a co-owner in Arizona

This article explains, in plain language, how someone in Arizona can refinance a mortgage and use the proceeds to buy out a co-owner of real property. It describes the typical steps, the documents you will encounter, common pitfalls, and options if the co-owner will not agree. This is educational information only and not legal advice—consult an attorney for advice specific to your situation.

Detailed Answer

When two or more people own real property together, one owner can usually buy out the other owner by refinancing the property in the buying owner’s name and using the loan funds to pay the selling owner for their share. The process usually follows these steps:

1. Confirm the type of ownership and legal interests.

   First identify how the property is owned: joint tenancy, tenancy in common, community property, or another form. Ownership type affects who must sign documents and how the transfer is carried out. Arizona law about property and ownership is contained in the Arizona Revised Statutes, Title 33 (Property). See: A.R.S. Title 33 (Property).

2. Agree on buyout terms or get an appraisal.

   The parties should agree on the buyout price. That price is usually the fair market value of the property times the selling owner’s percentage interest, less outstanding liens. If you cannot agree on value, obtain a professional appraisal.

3. Check the current mortgage and lender requirements.

   Review the existing loan for the following:

   • Whether the seller is on the mortgage and whether the lender will accept releasing one borrower;
   • Whether the loan has a due-on-sale clause that could be triggered by a transfer; and
   • Any subordinate liens or judgments affecting title that must be cleared.

   If the existing lender will not release the selling owner or will call the loan due, the buyer will refinance the property in their own name to obtain funds and a new loan. Deeds of trust and mortgage practices in Arizona are governed under property law—see A.R.S. Title 33 for statutory context.

4. Apply for refinance.

   The prospective buyer applies for a new mortgage. Typical lender requirements include credit checks, income verification, employment history, and a home appraisal. The lender will order title work to confirm ownership, liens, and that the seller’s interest can be removed after payoff.

5. Obtain a payoff statement and close the refinance.

   At closing, the new loan funds pay off any existing mortgage(s) and provide cash to the buyer to pay the selling owner for their share. The closing statement will show payoff amounts, new loan amount, and cash disbursements. The selling owner should receive full payment or a promissory arrangement if agreed.

6. Transfer title.

   After or at closing, the selling owner signs a deed transferring their interest to the buyer. Common deeds used are a quitclaim deed or a warranty deed depending on the parties’ agreement. The deed is recorded in the county recorder’s office to update public title records. Make sure the deed language matches the agreed transfer (full interest, percentage share, etc.).

7. Get lender releases or reconveyances.

   If the selling owner was on the prior deed of trust, ensure the prior lien is satisfied and a trustee’s reconveyance or release is recorded. The new lender will record its own deed of trust if you took a new mortgage.

8. Recordkeeping and tax considerations.

   Keep copies of the appraisal, payoff statements, closing documents, recorded deed, and title insurance policy. Understand possible tax consequences for the selling owner (capital gains) and for property tax reassessment issues at the county level—consult a tax advisor for specifics.

9. If you can’t agree: partition action or buyout through court.

   If the co-owner will not sell or cannot agree on price, a court can order partition of the property. A partition action forces division or sale of the property and is a civil process in Arizona courts. See the Arizona statutes governing civil procedures and remedies: A.R.S. Title 12 (Courts and Civil Procedure). A partition action can be expensive and time-consuming; courts may order a sale and split proceeds according to ownership shares.

Common documents you will encounter

• Appraisal report
• Loan application and underwriting disclosures
• Title commitment and title insurance policy
• Payoff statement from the existing lender
• Deed (quitclaim or warranty) transferring the seller’s interest
• Deed of trust and promissory note (new mortgage documents)
• Settlement statement showing distribution of funds

Typical timeline and costs

Refinance and buyout typically take 30–60 days from application to recording, depending on lender speed, appraisal availability, and title issues. Costs commonly include appraisal fees, title search and insurance, lender fees, recording fees, and possible attorney fees if you use counsel. Expect closing costs between about 2%–5% of the new loan amount, though amounts vary by lender and loan type.

Helpful Hints

• Get a neutral professional appraisal before negotiating the buyout price.
• Talk to potential lenders early to learn what loan size and terms you qualify for.
• Order a title report early to uncover liens, judgments, or easements that could block a clean transfer.
• If you are removing someone from title but not removing them from the mortgage, the lender’s consent may be required; otherwise the loan may remain their obligation.
• Consider whether a quitclaim deed is appropriate—quitclaim deeds transfer interest without warranties; warranty deeds provide stronger assurances about title.
• Keep all payoff and reconveyance documents; verify the prior lien is fully released and recorded.
• If negotiations stall, consult an attorney about a partition action and the likely costs and outcomes in Arizona courts (see A.R.S. Title 12).
• Consult a tax professional about capital gains or other tax consequences for both buyer and seller.
• Consider using an escrow or title company to handle closing funds and document recording to reduce risk.
• Document any side agreements (e.g., seller financing, payment schedule) in writing and record what is necessary to protect your interest.

Disclaimer: This article provides general information about Arizona law and common practice. It does not constitute legal advice, and it does not create an attorney-client relationship. For advice tailored to your situation, consult a licensed Arizona attorney.