A purchase money mortgage is a mortgage given as part of the transaction that creates the buyer's ownership interest in the property. The most common example: the buyer borrows from a bank to purchase a home, and the bank takes a mortgage on the property being purchased. Seller financing — where the seller takes back a mortgage from the buyer as part of the purchase price — is also a purchase money mortgage.
Under 42 Pa.C.S. § 8141, a purchase money mortgage has automatic first-lien priority — it takes priority over all other liens, judgments, and encumbrances against the buyer, even those that were recorded before the purchase. This is a major departure from the normal "first in time, first in right" recording rule.
Practical Example
Buyer has a $50,000 judgment recorded against them in Bucks County. Buyer purchases a home for $300,000 with a $240,000 mortgage from First National Bank. Despite the pre-existing judgment, First National's mortgage has first priority. The judgment creditor's lien is subordinate — meaning if the property is sold at foreclosure, the bank gets paid first.
To qualify for purchase money priority, the mortgage must be part of the same transaction in which the buyer acquires title. The mortgage need not be recorded simultaneously with the deed, but it should be recorded promptly. Pennsylvania courts have held that unreasonable delays in recording can jeopardize purchase money status.
When a seller takes back a purchase money mortgage (seller financing), the same priority rules apply — the seller's mortgage has automatic first-lien priority. This makes seller financing a relatively secure arrangement for the seller, provided the mortgage is properly documented and recorded. Key considerations for seller-financed transactions:
We draft purchase money mortgages for both buyers and sellers and can structure the transaction to protect both parties' interests.
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