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Massachusetts Agencies

"Silent Seconds"

Mortgages

It is said in R. Powell & P. Rohan, 3 The Law of Property ¶455.1[1] (1992), that:

Every mortgage loan obtained for the purpose of purchasing real estate is a purchase money mortgage. If the purchase money is obtained from an institutional lender it gives rise to a third party purchase money mortgage. * * * If the seller accepts a down payment and takes back a mortgage to secure payment of any portion of the remaining purchase price, then a vendor purchase money mortgage arises.

* * * * *

As between two purchase money mortgage on the same property -- one in favor of a third party lender and the other held by a vendor -- courts have given preference to the vendor. The decisions seem to be based on the fact that the vendor had a prior ownership interest in the property, while the third party lender merely later obtained a security interest in the property by lending money to the purchaser. This preference generally applies even if the vendor knew of the mortgage to the third party lender at the time the vendor agreed to extend credit to the purchaser.

The phrase in the text, "the third party lender merely later obtained a security interest in the property," (emphasis added) does not appear to suggest that the third party mortgage be recorded after the vendor's mortgage for the preference to apply, but simply modifies the prior phrase, "prior ownership interest." Otherwise, of course, the point of the treatise would be meaningless, as it would simply be a statement as to the order of recording of instruments.

At least one New England jurisdiction has specifically followed the rule regarding "silent seconds." See Libby n. Brooks, —Me—, 653 A.2d 422 (1995).

It's not clear whether the rule would apply if the institutional lender was not aware of the (vendor) purchase money mortgage.[1]

1 The purchase money mortgage would have priority if the institutional lender knew, or was deemed to know of it. The recording of the (vendor) purchase money mortgage (a.k.a. "take back" mortgage) might not impart constructive notice to the institutional mortgagee.