Also known as: purchase money mortgage loans · purchase-money mortgage loan · purchase-money mortgage loans · purchase money mortgage · purchase-money mortgage
Written by attorneys · grounded in primary & secondary sources — see below
A mortgage securing a loan whose proceeds are used to acquire title to real estate or to construct improvements on it when the mortgage is given as part of the same transaction in which title is acquired. The mortgage may be given to the vendor of the real estate or to a third-party lender. This status triggers special priority rules that protect the mortgage against certain preexisting claims arising against the purchaser.
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Pilar Pena contracted to buy a vacant lot from Prosperity Investments for $200,000. At closing Prosperity conveyed title and simultaneously received a $150,000 note and mortgage from Pena for the unpaid balance of the purchase price. The mortgage qualifies as a purchase money mortgage because its proceeds enabled Pena to acquire title in the same transaction.
Phuong Pham bought a parcel from a seller and simultaneously obtained a construction loan from Peak Performance. The lender advanced funds at closing that paid the remaining purchase price and covered initial site work begun the next week. The mortgage is a purchase money mortgage to the extent the proceeds financed acquisition of title in the same transaction.
Yes. The mortgage receives purchase money status only to the extent the proceeds are actually used to acquire title or to construct improvements as part of the same transaction. Any portion used for unrelated purposes loses that status and priority protection.
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No. A purchase money mortgage has priority over claims that attach to the real estate before the purchaser acquires title even if the mortgage is unrecorded. Recording is required only to protect against subsequent interests that arise through the purchaser after acquisition.
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A construction mortgage qualifies when the loan is given as part of the same transaction in which title is acquired and the proceeds are used to construct improvements on the newly acquired land. Negotiations with the lender must begin before acquisition and the loan must be made incident to or within a reasonable time after title passes.
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Yes. In the absence of contrary intent by the parties and subject to recording acts, a purchase money mortgage given to the vendor has priority over a purchase money mortgage given to a non-vendor lender.
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