Land Transfer Chapter 7

A Note on Purchase Money Mortgage Priority in Pennsylvania.

Unlike the "common law" priority rule for purchase money mortgages described in the coursebook and adopted by the Restatement (Third) of Property (Mortgages) § 7.2, the priority of purchase money mortgages in Pennsylvania has been governed by statute for many years. The current statutory provision is:

42 Pa.C.S. § 8141. Time from which liens have priority
Liens against real property shall have priority over each other on the following basis:
(1) Purchase money mortgages, from the time they are delivered to the mortgagee, if they are recorded within ten days after their date; otherwise, from the time they are left for record. A mortgage is a "purchase money mortgage" to the extent that it is:

(i) taken by the seller of the mortgaged property to secure the payment of all or part of the purchase price; or

(ii) taken by a mortgagee other than the seller to secure the repayment of money actually advanced by such person to or on behalf of the mortgagor at the time the mortgagor acquires title to the property and used by the mortgagor at that time to pay all or part of the purchase price, except that a mortgage other than to the seller of the property shall not be a purchase money mortgage within the meaning of this section unless expressly stated so to be.

(2) Other mortgages and defeasible deeds in the nature of mortgages, from the time they are left for record.
(3) Verdicts for a specific sum of money, from the time they are recorded by the court.
(4) Adverse judgments and other orders, from the time they are rendered.
(5) Amicable judgments, from the time the instruments on which they are entered are left for entry.
(6) Writs which when issued and indexed by the office of the clerk of the court of common pleas create liens against real property, from the time they are issued.
(7) Other instruments which when entered or filed and indexed in the office of the clerk of the court of common pleas create liens against real property, from the time they are left for entry or filing.
Act of April 28, 1978, P.L. 202, No. 53, § 10(96).

Based on this language, do you think that a prospective purchase money lender would be acting prudently in extending the loan to the purchaser-mortgagor without examining the title and other public records for existing judgments or other liens against the purchaser-mortgagor? What about liens of record in another county? What about the reach of an "after-acquired property clause in a mortgage already of record in the county? in another county?

How would illustration 1 to comment b of the Restatement be decided in Pennsylvania? Illustration 1 reads:

1. On February 1, J obtains a judgment lien for $15,000 against R. On March 1, V, the owner of Blackacre, and R enter into a contract for the sale of Blackacre to R. The contract provides for a purchase price of $50,000. R agrees to pay $10,000 in cash at the settlement date and V agrees to take back a promissory note and mortgage on Blackacre for the balance of the price. On April 1, the date of settlement, V conveys Blackacre to R and R pays $10,000 in cash to V. Several days later, R delivers to V a promissory note for $40,000 secured by a mortgage on Blackacre. At the time V takes the mortgage, V has actual knowledge of J's judgment. V's mortgage is never recorded. V's $40,000 mortgage on Blackacre is senior to J's judgment lien.

Some variations:

Suppose that V had no actual knowledge of J's judgment?
Suppose that V's mortgage is recorded on the date it is executed and delivered to V?
Suppose that V's mortgage is recorded one month after the date it was executed and delivered to V?

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