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22. Which loan has priority?
There are no applicable statutes.
The buyer has now defaulted on both loans.
At the closing, the buyer signed a promissory note to the seller for 15% of the purchase price but did not execute a mortgage. The bank knew of the loan made by the seller and of the promissory note executed by the buyer to the seller. The buyer also signed a note to the bank, secured by a mortgage, for the 80% advanced by the bank.
A seller conveyed residential land to a buyer by a warranty deed that contained no exceptions and recited that the full consideration had been paid. To finance the purchase, the buyer borrowed 80% of the necessary funds from a bank. The seller agreed to finance 15% of the purchase price, and the buyer agreed to provide cash for the remaining 5%.
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A is incorrect. A seller may finance the purchase of property in a number of ways, including by an installment land contract, by securing the note with a purchase-money mortgage, or by an equitable vendor's lien. However, the seller did not secure the note with a mortgage, nor was an installment land contract used. The seller may have had an equitable vendor's lien for the unpaid purchase price, but the deed recites that the full consideration was paid. Therefore, the bank's purchase-money mortgage takes priority over the seller's unsecured loan and any implied equitable vendor's lien even if the bank knew of the vendor's lien.
C is incorrect. The seller's promissory note could have been secured by a mortgage, but it was not. The seller may have had an equitable vendor's lien for the unpaid purchase price, but the deed recites that the full consideration was paid. Therefore, the bank's purchase-money mortgage takes priority over the seller's unsecured loan and any implied equitable vendor's lien even if the bank knew of the vendor's lien.
D is incorrect. The seller may have had an equitable vendor's lien for the unpaid purchase price, but the deed recites that the full consideration was paid. Therefore, the bank's purchase-money mortgage takes precedence over the seller's unsecured loan as well as any implied equitable vendor's lien, and it is irrelevant that the bank knew of the vendor's lien.