Underwriting Manual: TX 15.60 Purchase Money Mortgages

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.  Under principles of equitable subrogation, the lender who advances the money to purchase property stands in the same position as the seller.

Purchase money mortgages are recognized as being senior to claims, homestead, community property rights, outstanding judgments and earlier mortgages on after-acquired property.

Company Policy: Either spouse can sign documents refinancing a purchase money lien without the joinder of the other spouse.  (See Zable v. Henry 649 S.W.2d 136 (Tex. App. 1983); andBell v. Pirtle 69 S.W.2d 476 (Tex. App. 1934))

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 policy must reflect any lien or claim attaching to the property through the mortgagor.