Also known as:purchase money mortgages · purchase-money mortgage · purchase-money mortgages · PMM
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 as part of the same transaction in which title is acquired.
Sources & Authorities
How it applies
Common Examples
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Seller and Bank Finance Acquisition
Phoebe Park contracted to buy a vacant parcel from Premier Manufacturing. At closing Phoebe paid a portion in cash, gave Premier a note and mortgage for the balance of the price, and simultaneously borrowed the rest from Pulse Media, granting Pulse a mortgage on the parcel to fund immediate site work. A preexisting judgment creditor of Phoebe later recorded a lien. Both mortgages qualify as purchase money mortgages and take priority over the judgment lien because the loan proceeds funded acquisition and contemporaneous improvements in the single closing transaction.
Vendor Mortgage Outranks Third-Party Loan
Peter Park bought a warehouse from Portia Price. At the simultaneous closing Peter gave Portia a note and mortgage for most of the price and obtained additional funds from Prism Analytics secured by a second mortgage on the warehouse. Prism's loan paid the remaining price plus minor repairs completed days later. Both mortgages were executed and recorded the same day. Portia's mortgage takes priority over Prism's mortgage because a vendor purchase money mortgage prevails over a third-party purchase money mortgage in the absence of contrary agreement.
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Cases
Restatements
Casebooks
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Study Supplements
Dictionaries
The Symphony Space, Inc. v. Pergola Properties, Inc.669 N.E.2d 799 (1996)
Common questions
Frequently Asked
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Does a mortgage qualify as a purchase money mortgage if only part of the loan proceeds pay the purchase price?+
Yes. The mortgage receives purchase money status only to the extent the proceeds are applied to acquisition of title or contemporaneous improvements. The remaining portion is treated as an ordinary mortgage.
Supporting sources
Must a purchase money mortgage be recorded to retain priority over preexisting claims against the buyer?+
No. A purchase money mortgage, whether recorded or not, has priority over any mortgage, lien, or other claim that attaches to the real estate but arises against the purchaser before acquisition of title.
Supporting sources
When does a construction loan qualify as a purchase money mortgage?+
A construction loan qualifies to the extent its proceeds fund improvements on the real estate, provided the mortgage is given as part of the same transaction in which title is acquired. The borrower must begin negotiations with the lender before taking title and the loan must close incident to or shortly after acquisition.
Supporting sources
How does a vendor purchase money mortgage rank against a simultaneous third-party purchase money mortgage?+
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 on the same real estate.
Supporting sources
669 N.E.2d 799 (1996)Property
…price of $10,010. The contract specified that $10 was to be paid at the closing and $10,000 was to be paid by means of a purchase-money mortgage. The parties also signed several separate documents, each dated December 31, 1978: (1) a deed for the property from Broadwest to Symphony; (2) a lease from Symphony to Broad-west of the…