1. In most instances homes usually can have two mortgages placed as a lien against a property. Under normal conditions you can have a first mortgage and a second mortgage. Some companies during the refi boom were putting a third lien against the property. Local banks and credit unions were the ones that did the third lien.
2. When people are trying to refinance their home the mortgage company will look at their credit report and will contact the local city or county government office to pull up who is on the title of the home and any outstanding liens against the property. If you default against anything including credit cards or if you are behind with taxes these can be put as a lien against the property.
3. What these companies do is register the lien with the county and it is recorded. If you ever plan to refinance the home or sell it, those liens must be paid. In the event of a sale, when the title of the home is transferred it can only be switched with a clean title. No person will ever take a home with a bunch of back taxes and liens (unless they want to and see they are still getting a deal with the purchase).
4. Mortgage companies always want to be in the first or second lien position. The government is technically always in first lien position then the mortgage companies. The county will not let you refinance the home until the property taxes are paid up. Your property taxes are vital in funding the services your city provides like the Police and Fire Departments.
5. If the home was to go into foreclosure and the mortgage company let you refinance without paying off liens or collections than they would be last in line to get paid in the event of a short sale or sherriff auction. It goes by who registered the liens first. No mortgage company will take a risk on you if when everything is added up and you owe more than what the house is worth with all of the debts not being paid.
6. When your loan application documents start coming into the mortgage companies office and they see these outstanding liens it can deny your mortgage right then and there. If you do not have enough equity in your home to pay off all of your outstanding liens than no mortgage company will look at you. You are too risky to lend too.
7. Collections will follow you around forever if you do not take care of them. Lets say that you are a first time home buyer and you know that you have some outstanding bills you refuse to pay. You make good money and have enough money in the bank account to put a 20% down payment on the house. You just do not want to pay off those old debts because of a misunderstanding about the bill or you just hate that company. Unfortunately those debts are still on your credit report ruining your credit score. You call up a couple mortgage companies and they all tell you the same thing in that you have to pay the collections off before they can approve you on a loan. Of course this gets you mad because now with interest and late fees your old debts have gone up some 25% and you have to take the money out of your down payment to pay the debt off. The reason is because that collection account will follow you onto the house you are going to buy putting the mortgage company in second lien position.
8. Self employed people always have a tricky time when it comes to income taxes. Some defer their taxes for a couple years at a time because they do not have the money to pay them. One of the first things a mortgage company will ask a self employed person is if they can show how much money they make on your income taxes. If you tell them that you have not paid them but have an extension filed with the IRS it does not matter. You must file your taxes because the mortgage company does not know for sure if you have paid them or not and will not take the risk on you.
9. If you cannot pay all of these debts off when trying to refinance your home you might be better off not doing anything. As long as it is not property taxes because that is house the government can step in and foreclose on your home. Maybe you will have to look at other ways to get the money you need. If you can still afford your mortgage payment then maybe doing nothing at all is the best way to go. In some cases the credit card companies or other debtors will call you and negotiate a debt that is half of what you owe just so they can get money back in their doors.
10. Do your best to stay up to date on all of your bills and to never get caught with collections or liens on your credit report. Not only will you not be able to buy a home or refinance your mortgage it will also ruin your credit score. The IRS makes sure you are always up to date on your income taxes and your local government just wants you to pay your property taxes. Stay on top of your bills and debts and when you do you will then be able to find a mortgage company that will close on your mortgage.