Also known as: purchase money mortgage · purchase-money mortgage · purchase-money mortgages · PMM · purchase-money security interest
Written by attorneys · grounded in primary & secondary sources — see below
A mortgage given to a vendor of real estate or to a third-party lender to the extent the loan proceeds are used to acquire title to the real estate or to construct improvements on it as part of the same transaction in which title is acquired. The mortgage receives special priority over claims that attach to the real estate before the purchaser-mortgagor obtains title.
Priya Prasad contracted to buy a warehouse from Pedro Pacheco for $800,000. At closing Pacheco conveyed title and immediately received a $600,000 promissory note secured by a mortgage on the warehouse. A preexisting judgment lien against Prasad attached to the property the day before closing. The vendor mortgage is senior to the judgment lien even though it was never recorded.
Pioneer Energy sold specialized drilling rigs to Paige Porter on credit and took a purchase-money security interest. Porter received the rigs on March 1. Pioneer filed its financing statement on March 28. A judgment creditor obtained a lien on the rigs on March 10. The judgment creditor takes priority over the purchase-money interest.
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Penelope Price bought a new refrigerator on credit from Platinum Partners for her personal residence. Platinum took a purchase-money security interest in the appliance. No financing statement was filed. Price later filed bankruptcy. The security interest is perfected upon attachment and prevails over the bankruptcy trustee.
Progressive Healthcare purchased diagnostic equipment on credit from Patriot Insurance under a purchase-money arrangement. Patriot perfected its security interest by filing within twenty days after Progressive received the equipment. An earlier secured party held a blanket lien on all of Progressive's assets. Patriot's interest has priority in the equipment and its identifiable proceeds.
Pierre Poulin bought inventory for his retail store from Paula Pierce on credit. Pierce took a purchase-money security interest and perfected when Poulin received the goods. Pierce also sent signed notification to an earlier inventory lender describing the collateral before Poulin received possession. Pierce's interest has priority in the inventory and certain proceeds.
Yes. A purchase money mortgage given to the vendor has priority over a purchase money mortgage given to a non-vendor in the absence of contrary intent by the parties.
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The mortgage qualifies as a purchase money mortgage only to the extent the proceeds are used to acquire title or construct improvements in the same transaction. Priority is allocated proportionally.
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No. Recording is unnecessary to protect against claims that arose against the purchaser-mortgagor before title was acquired, although recording remains necessary to protect against subsequent interests.
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Filing within twenty days after the debtor receives the collateral gives the purchase-money interest priority over buyers, lessees, or lien creditors whose rights arose in the gap between attachment and filing.
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