Anyone with a passing familiarity with the priority of mortgages Minnesota is well aware of the general rule that “first of record is ordinarily first of right.” This week, the Minnesota Court of Appeals, adhering to this rule, reversed Chisago County District Judge John R. McBride, who had ruled in favor of property sellers (who were parties to a purchase-money mortgage) in their priority dispute with property-buyers’ third-party lender (who had their own purchase-money mortgage withe buyers).
Judge McBride had ruled in favor of the “seller/lenders” over the “bank/lender” because the former was a “vendor’s purchase-money mortgage” and because the the sellers purportedly did not have notice of the the third-party lender’s mortgage or its intended priority.
Responding to a request for his insights into the ruling, preeminent Minnesota real estate law authority Kevin Dunlevy weighs in:
The Court of Appeals got it right on this case. It’s hard to believe the seller did not know the buyer was getting mortgage financing from the third party lender. Confirming the buyer has the financial ability to complete the purchase is a key concern for any seller. If the buyer can’t finance the purchase, the seller incurs the cost of canceling the purchase agreement and a delay in selling the property. A third party who advances new money in good faith should have priority over seller financing as a general rule. The seller does not advance new money but just washes part of the purchase price with the seller financing. In addition, the seller takes the bulk of the new money advanced by the third party lender. The seller would not be able to close the transaction without the funds from the third party lender. The Court of Appeals astutely noted that this seller had “implied” or “duty to inquire” notice of the third party mortgage from the closing statement.
He makes it sound obvious.
Thanks to “KD” for the valuable insight!