Also known as: purchase-money · purchase money mortgage · PMSI
Written by attorneys · grounded in primary & secondary sources — see below
2 senses
Funds paid or payable by a purchaser to a vendor for the acquisition of real estate. Under equitable conversion a binding land-sale contract treats the seller as owner of these funds while the buyer holds an equitable interest in the land.
Proceeds of a loan used to acquire title to property or to construct improvements on it when the mortgage or security interest is given as part of the same transaction in which title is acquired. The resulting purchase-money mortgage or security interest receives special priority over earlier claims against the purchaser.
Each sense below has its own examples, sources, and questions.
Funds paid or payable by a purchaser to a vendor for the acquisition of real estate. Under equitable conversion a binding land-sale contract treats the seller as owner of these funds while the buyer holds an equitable interest in the land.
Select any source to read its text and confirm it supports the definition.
Perry Pratt signed a binding contract on June 1 to buy a hilltop parcel from Pamela Phillips for two million dollars, with closing set for July 15. On July 8 a lightning storm toppled the cell tower that supplied most of the parcel's value. Because the contract treated Pamela as owner of the purchase money from the moment of formation, Perry bears the risk of loss and must still pay the full price at closing.
Pavel Petrov contracted to purchase a warehouse from Paige Porter. Before closing a fire destroyed the building. Under equitable conversion Pavel is treated as owner of the land and Paige as owner of the purchase money, so the risk of loss shifted to Pavel at contract formation and he must still pay the full price.
Once a binding contract for the sale of land is formed, equity treats the buyer as owner of the land and the seller as owner of the purchase money. In most jurisdictions the risk of loss therefore passes to the buyer at contract formation, so the buyer must still pay the full price even if the property is destroyed before closing.
Supporting sources
Proceeds of a loan used to acquire title to property or to construct improvements on it when the mortgage or security interest is given as part of the same transaction in which title is acquired. The resulting purchase-money mortgage or security interest receives special priority over earlier claims against the purchaser.
Select any source to read its text and confirm it supports the definition.
Logan agreed to buy a vacant lot from Rita for two hundred thousand dollars and simultaneously gave her a mortgage for the full price. At the same closing Local Bank lent Logan three hundred thousand dollars secured by a mortgage whose proceeds funded construction of a model home on the lot. Both mortgages qualify as purchase money and therefore prime an earlier judgment lien against Logan even though the judgment was recorded months before closing.
Premier Manufacturing sold equipment to Pulse Media on credit and took a purchase-money security interest. Premier filed its financing statement eighteen days after Pulse Media received the equipment. Because the filing occurred within the twenty-day grace period the purchase-money security interest primes intervening lien creditors that arose between attachment and filing.
Portia Price bought a refrigerator on credit from Platinum Partners for personal use. Platinum Partners retained a purchase-money security interest in the appliance. The interest is automatically perfected upon attachment because the collateral consists of consumer goods.
A mortgage qualifies as a purchase money mortgage to the extent its proceeds are used to acquire title to the real estate or to construct improvements on it when the mortgage is given as part of the same transaction in which title is acquired.
Supporting sources
Yes. A purchase money mortgage, whether or not recorded, has priority over any mortgage, lien, or other claim that attaches to the real estate but is created by or arises against the purchaser-mortgagor prior to the purchaser-mortgagor's acquisition of title.
Supporting sources
Pinnacle Holdings lent Paul Peterson funds to purchase a commercial printing press and perfected its purchase-money security interest within twenty days after Paul received possession. The perfected interest has priority over a conflicting security interest in the same press held by another lender.
A perfected purchase-money security interest in goods other than inventory or livestock has priority over a conflicting security interest in the same goods if the purchase-money security interest is perfected when the debtor receives possession of the collateral or within twenty days thereafter.
Supporting sources
If a person files a financing statement with respect to a purchase-money security interest before or within twenty days after the debtor receives delivery of the collateral, the security interest takes priority over the rights of a buyer, lessee, or lien creditor that arise between attachment and filing.
Supporting sources