PRACTICAL POINTERS FROM PRACTITIONERS Amendments to Delaware’s Purchase Money Mortgage Statute Recent changes to Delaware’s purchase money mortgage statute may promote increased use of this real estate financing option, but practitioners must familiarize themselves with the requirements and limitations of the amended statute to effectively advise their clients. On September 28, 2020, Gov. John Carney signed an act amending the Delaware purchase money mortgage statute codified in Title 25, Section 2018 of the Delaware Code. Under the prior statute, purchase money mortgages were limited to mortgages made by the purchaser to the seller of the property to secure all or part of the purchase price and had to be recorded within five days of the recording of the deed to receive priority. Because of the narrow scope of the prior statute, the use of purchase money mortgages was limited, even though the act allowed later-recorded purchase money mortgages priority over other earlier recorded liens or mortgages. The new statute expands the definition of a purchase money mortgage under Delaware law to include third-party lenders who provide financing for the purchase, extends the time to record a purchase money mortgage from five days to ten days, and explicitly subordinates mechanics’ liens to purchase money mortgages. Expanded Definition of Purchase Money Mortgage Under the amended statute, a “purchase money mortgage” means one or more of the following: (1) a mortgage Contributing Author: Olufunke O. Leroy, Holland & Knight LLP, 2929 Arch Street, Suite 800, Philadelphia, PA 19104, Olufunke.Leroy@hklaw.com.
taken by the seller to secure payment of all or part of the purchase price; or (2) a mortgage taken by a mortgagee other than the seller to secure the repayment of money advanced by the mortgagee to or on behalf of a 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. 25 Del. Code § 2108(a). The definition of a purchase money mortgage has been expanded to include any mortgage that secures the repayment of money advanced by the mortgagee at the time the mortgagor acquires title to the property. In short, for a mortgage to have purchase money priority, the mortgagee need not be the seller as long as the mortgage is made by the purchaser to the mortgagee to secure all or part of the purchase money. Further, under the new statute, a mortgage that states that it is intended to constitute a purchase money mortgage creates a rebuttable presumption that the mortgage is a purchase money mortgage. Accordingly, if the parties intend for a mortgage to be a purchase money mortgage, then the mortgage documents should include the statutory language to create the presumption, which would mitigate potential priority disputes by shifting the burden of proof to the party challenging the priority of the purchase money mortgagee. Achieving Super-Priority Status For a purchase money mortgage to have priority status, both of the following must occur: (a) the purchaser must make a purchase money mortgage to the seller or mortgagee on all or part
of the property being sold to secure all or part of the purchase money; and (b) the purchase money mortgage must be recorded within ten days after the deed conveying the property from the seller to the purchaser is recorded. While the extended time to record strengthens purchase money mortgages in favor of lenders, the statute does not apply retroactively to previously recorded mortgages, as the timing is tied to the recording of the purchaser’s deed. If the two conditions above are satisfied, then the lien of the purchase money mortgage on all or part of the property will have preference to and priority over a judgment against the mortgagor or any other lien created or suffered by the mortgagor, including mechanics’ liens filed or entitled to be filed under Chapter 27 of the Delaware Real Estate Code (i.e., Title 25). Such priority applies even when the judgment or lien is dated before the purchase money mortgage. Notably, the statute applies to subordinate purchase money mortgages. If there are two or more purchase money mortgages on the same property, then the mortgages are given priority based on the times that each is recorded in the proper office. If multiple purchase money mortgages on the same property are recorded at the same time, then none will receive preference or priority over another. 25 Del. Code § 2108(d). Practical Considerations Legislation amending the purchase money mortgage statute was introduced in the Delaware General Assembly on June 12, 2020. It passed unanimously in the Senate on June 23, unanimously in the House on June
Published in Probate & Property, Volume 35, No 6 © 2021 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
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November/December 2021
