The traditional purchase money mortgage is one taken back by a seller for part of the purchase money. This is, a mortgage which is given to secure money to be applied on the purchase price of the land.
The law relating to the superiority of purchase money mortgages is well settled. Generally, purchase money mortgages take priority over any prior or subsequent claims or liens attaching to the property through the mortgagor.
Purchase money mortgages are recognized as being senior to claims, dower, homestead, community property rights, outstanding judgments and earlier mortgages on after-acquired property.
The Internal Revenue Service has ruled that a purchase money security interest or mortgage, valid under local law, is protected even though it may arise after a notice of federal tax lien had been filed (Revenue Ruling 68-57), 1968-1).
Notwithstanding the above, before waiving any such matters against a mortgagor in a loan policy insuring a purchase money mortgage executed by said mortgagor, care must be taken to ascertain that the mortgage is in fact a purchase money mortgage.
An owner's policy should reflect any lien or claim attaching to the property through the mortgagor.