MBE Rules · Real Property
Purchase-Money Mortgage Priority
Purchase-money mortgage priority
The rule
A mortgage securing the price of the property itself takes priority over prior-arising liens and judgments against the buyer, and a seller's PMM generally beats a third-party lender's.
In plain English
A purchase-money mortgage (PMM) is a loan used to buy a property, and it takes priority over other liens or judgments that may exist against the buyer. This means that if a buyer has a PMM, it will be paid off first in the event of a foreclosure, even before other creditors or lenders.
Worked example
John buys a house and takes out a purchase-money mortgage from the seller, Mary, to finance the purchase. Before the sale, John had a judgment lien against him from a previous debt. When John defaults, Mary’s PMM takes priority over the judgment lien, allowing her to recover her money first from the sale of the property.
Memory hook
PMM: The mortgage that gets the first slice of the pie!
The trap
Exams may present scenarios where students confuse the priority of a PMM with other types of liens, leading to incorrect conclusions about who gets paid first. Watch out for tricky fact patterns that include multiple creditors.
How examiners test it
Questions often involve a buyer with existing debts and a PMM, testing the candidate's understanding of lien priority in foreclosure situations. Look for fact patterns that require you to analyze the order of payment among various creditors.
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