MBE Real Property Practice Test

The key concept is that a purchase-money mortgage has priority over preexisting mortgages and liens to the extent the loan funds were used to acquire the property. This rule protects the lender who provided the funds to buy the property, ensuring repayment from the property’s value before other creditors with liens recorded earlier. If the loan funds were used entirely to purchase the property, the purchase-money mortgage takes full priority over existing liens for that amount. If only part of the loan financed the purchase and other funds were used for later improvements or other costs, only the portion used to acquire the property enjoys this priority, with the remaining funds treated under normal lien rules. Other types, like a second mortgage, construction loan, or judgment lien, do not inherently hold this purchase-money priority.