How do identify a Purchase Money Mortgage? Forum

[ScurryRay]

Mortgage stuff is confusing to me and I am struggling with how to identify a PMM in an MBE question. Here's an example of one. Any tips for a simpleton to identify a PMM?

"An attorney was sued by a client for malpractice. The client obtained a judgment against the attorney and, by filing the judgment in the county in which the attorney rented an office, created a lien that was valid against any real property then owned or subsequently acquired by the attorney for up to 10 years. Three years later, the attorney purchased a residence in the same county. The attorney financed the purchase with a loan from a bank, which was secured by a mortgage on the residence. Two years later, the attorney failed to make the required mortgage payments. The bank initiated foreclosure proceedings, joining the client as a party. The jurisdiction has adopted the following statute: “No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law.” In addition, the jurisdiction treats a mortgage as a lien against the real property. Who has priority to the proceeds from the foreclosure sale?"

[lawposeidon]

Dear God I'm glad I'm done with the bar. This is a purchase money mortgage because it was used to buy the property. I thiiiiink the bank has priority because the court lien wasn't recorded? I don't work in property tho and these are hazy 1L memoris.

[adil91]

A purchase money mortgage is a mortgage used to purchase the real estate that is being used as collateral for the mortgage. It is the most common type mortgage for every day homeowners. When you buy a house, you take out a mortgage with a bank, your house is used as collateral to make sure you pay off the mortgage. The bank has a purchase money mortgage. Meaning they can foreclose on your house if you fail to pay and they'll have priority over all other creditor. Purchase Money Mortgages also exist in commercial contexts

[lawposeidon]

In case OP is still confused, a second mortgage on a property (that you take out years after buying it to get spending cash) isn't a PMM. Tell us the answer to the MBE pls!

[Nightcrawler]

Mortgage stuff is confusing to me and I am struggling with how to identify a PMM in an MBE question. Here's an example of one. Any tips for a simpleton to identify a PMM?

"An attorney was sued by a client for malpractice. The client obtained a judgment against the attorney and, by filing the judgment in the county in which the attorney rented an office, created a lien that was valid against any real property then owned or subsequently acquired by the attorney for up to 10 years. Three years later, the attorney purchased a residence in the same county. The attorney financed the purchase with a loan from a bank, which was secured by a mortgage on the residence. Two years later, the attorney failed to make the required mortgage payments. The bank initiated foreclosure proceedings, joining the client as a party. The jurisdiction has adopted the following statute: “No conveyance or mortgage of real property shall be good against subsequent purchasers for value and without notice unless the same be recorded according to law.” In addition, the jurisdiction treats a mortgage as a lien against the real property. Who has priority to the proceeds from the foreclosure sale?"

I don't think that you need to think about PMM for the purposes of this question. This is a recording statute question. Here, the statute is a Notice Statute. Therefore, any subsequent BFP (bank) will prevail over a previous grantee (client). So, the bank will have priority if it's considered a BFP. To be considered a Bona Fide Purchaser (BFP), the bank must be considered a purchaser for value without notice. There aren't facts pointing to notice by the bank but it seems like the bank can be considered a purchaser for value because it's trying to get the property in exchange for money. It's a weird question. What's the answer?

[FinallyPassedTheBar]

I believe a purchase money mortgage always has priority over other mortgages and liens.

So the notice statute at the end of the narrative is a red herring.

Since the mortgage was a purchase money mortgage, the bank will have priority. Not because it is a BFP...but because the bank gave a purchase money mortgage.

[ScurryRay]

The correct answer was D (see below for choices) - because it was a PMM.

I guess what I am struggling with is what are the magic words to look for to identify a PMM. I can barely balance a checkbook and when I read this stuff it all sounds like financial gobbledeegook. I'm just hoping to be able to identify some key terms or a statement that indicates it is a PMM. I understand the concept of it, but putting that into practice is a separate issue. Are the key words in this problem that identify it as a PMM when it says "loan from a bank which was secured by a mortgage on a residence"?

Answer Choices:

a) The client, because the lien was first in time.
b) The client, because the lien was recorded first.
c) The bank, because the lien is not affected by the foreclosure sale.
d) The bank, because the mortgage was a purchase money mortgage.

[FinallyPassedTheBar]

The correct answer was D (see below for choices) - because it was a PMM.

I guess what I am struggling with is what are the magic words to look for to identify a PMM. I can barely balance a checkbook and when I read this stuff it all sounds like financial gobbledeegook. I'm just hoping to be able to identify some key terms or a statement that indicates it is a PMM. I understand the concept of it, but putting that into practice is a separate issue. Are the key words in this problem that identify it as a PMM when it says "loan from a bank which was secured by a mortgage on a residence"?

Answer Choices:

a) The client, because the lien was first in time.
b) The client, because the lien was recorded first.
c) The bank, because the lien is not affected by the foreclosure sale.
d) The bank, because the mortgage was a purchase money mortgage.

Just remember this: If party A gives a loan to party B, for the express reason that party B will buy something, that loan is a purchase money mortgage.

[FinallyPassedTheBar]

"loan from a bank which was secured by a mortgage on a residence"?


Yes those are the magic words. The passive voice in that phrase can make it confusing.

[Nightcrawler]

I believe a purchase money mortgage always has priority over other mortgages and liens.

So the notice statute at the end of the narrative is a red herring.

Since the mortgage was a purchase money mortgage, the bank will have priority. Not because it is a BFP...but because the bank gave a purchase money mortgage.

So when you see a PMM you can ignore recording statutes? Learning something new every day. God, I hate real property.

[albanach]

"loan from a bank which was secured by a mortgage on a residence"?


Yes those are the magic words. The passive voice in that phrase can make it confusing.

A home improvement loan from a bank, secured by a mortgage on a residence is not a purchase money mortgage. The PMM must have been used for the purchase of the property upon which it is secured.

[lawposeidon]

So when you see a PMM you can ignore recording statutes? Learning something new every day. God, I hate real property.

Ditto. Now that I reread the ? it doesn't say whether the lien or mortgage were recorded.

[FinallyPassedTheBar]

I believe a purchase money mortgage always has priority over other mortgages and liens.

So the notice statute at the end of the narrative is a red herring.

Since the mortgage was a purchase money mortgage, the bank will have priority. Not because it is a BFP...but because the bank gave a purchase money mortgage.

So when you see a PMM you can ignore recording statutes? Learning something new every day. God, I hate real property.

Yes, for the MBE, if you have a PMM, recording statues are irrelevant.

[hockeyman969]

Purchase money mortgages take priority over all prior liens except prior federal income tax liens, so long as the PMM was recorded. The PMM still has to be recorded to be effective and the mortgage follows the note...for those of you in a jurisdiction that tests Article 3, I'm looking at you Florida. I can see an article 3 and 9 hybrid with a problem with a mortgage chain of title and an article 9 priority battle...glad I'm done taking bar exams!