The Statewide Title Newsletter and Legal Memorandum

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Issue  3  Article  5
Published:  10/1/1995

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Purchase Money Mortgages and Deeds of Trust - Joinder of non-owner spouse; priority
Ed Urban, Vice President and State Legal Counsel

1. General Comments

A "purchase money mortgage" or "purchase money deed of trust" presents certain interesting problems pertaining to joinder and priority.

2. Joinder Of Non-owner Spouse

While the spouse who is not in title (the non-owner spouse) might be an obligor on the secured promissory note, at times that spouse will not want to join in the deed of trust. However, instead of that situation arising, the purchaser will be separated and will want to acquire title in the purchaser’s name only and execute the purchase money mortgage or deed of trust without the joinder of the non-owner spouse. Absent a separation agreement which dispenses with the necessity of such joinder (see G.S. 52-10; G.S. 52-10.1; G.S. 39-7; and G.S. 39-13.4), the following doctrine can be relied upon.

G.S. 39-13 applies to mortgages and deeds of trust securing payment of purchase money. It specifically states that joinder of the non-owner spouse is not required. However, arguably, the statute only applies to such an instrument when the lender is the seller.

G.S. 29-30 provides for elective life estate rights. Our long standing interpretation of G.S. 29-30(g)(2) is that G.S. 29-30(g)(2) clearly eliminates the requirement for joinder of the non-owner spouse in any purchase money mortgage or purchase money deed of trust, including those securing a third party lender.

Under G.S. 39-13 or G.S. 29-30(g)(2), since "purchase money mortgage or deed of trust" is undefined, it would seem that all loan proceeds must go to pay the seller or to pay closing costs. Neither statute requires simultaneous recordation of the deed and purchase money instrument.

3. Purchase Money Mortgages and Deeds of Trust - Priority

If a judgment or mechanics’ lien is incurred by a party before the party acquires title to real property and that party gives a deed of trust to secure all or part of the purchase price and the deed and deed of trust are executed, delivered and recorded as close to simultaneous as possible as part of one transaction, the purchase money deed of trust will have priority over the otherwise prior lien and that is true if the lender is a seller or third party. See Carolina Builders, infra.

However, an eleven day delay in the deed of trust’s recording precluded application of the doctrine. Pegram-West, Inc. v. Hiatt Homes, Inc., 12 N.C. App. 514, 184 S.E. 2d 65 (1971).

Also, a construction loan deed of trust recorded between the recording of the deed and purchase money deed of trust precluded application of the doctrine. Carolina Builders, Corp. v. Howard-Veasey Homes, Inc., 72 N.C. App. 224, 324 S.E. 2d 626, cert. den., 313 N.C. 597, 330 S.E. 2d 606 (1985).

In addition, to the extent that the proceeds of the deed of trust funded construction advances, the doctrine did not apply, resulting in a "divided priority" for the deed of trust. Dalton Moran Shook, Inc. v. Pitt Development Co., 440 S.E. 2d 585 (N.C. App. 1994).

While the doctrine applies to prior judgments and federal tax liens, it might not apply to the federal judgments having a twenty year duration. See 28 U.S.C. Secs. 3003(d) and 3201(b).

These rules apply to a mortgage as well as a deed of trust.

4. Title Reporting

The title examining attorney should report a lien that is subordinate to a purchase money mortgage or deed of trust under the rules discussed in 3. above so that the lien can be pointed out in and insured against by any loan policy insuring such purchase money instrument, since the lien pre-dates the policy’s effective date. Also, such a lien, if reported, should be listed in the purchaser’s owner’s policy.

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