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Purchase Money D.O.T.
Chicago Bull

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Occasionally, an attorney will report that there is some problem with the purchaser. This often involves judgments against the purchaser or the failure of the purchaser's spouse to sign a deed of trust. Our first response in these situations is to ask whether or not the deed of trust is a purchase money deed of trust (PMDT).

The PMDT is a deed of trust which secures money used to purchase the property. The beneficiary is often the seller of the property, but can be a third party lender.

The significance of the PMDT is that it can give the deed of trust priority over preexisting judgments and liens against the purchaser. It also has priority over the marital interests of the owner's spouse. NCGS §39-13. In these situations it is essentially a pass to the front of the line. This means that the judgments against the purchaser do not have to be satisfied and the spouse does not have to sign a purchase money deed of trust for property held in the other spouse's name in order for us to insure the priority of the loan.

This instant priority for a PMDT relies upon the doctrine of instantaneous seisin. What is instantaneous seisin? Instantaneous seisin is a legal fiction which provides that when a deed and PMDT are executed, delivered and recorded as part of the same transaction, the title conveyed by the PMDT attaches the instant the vendee acquires title and constitutes a lien superior to all others. This means that we must require that the PMDT be recorded in the "same transaction" as the deed.

The courts have provided that the "same transaction" occurs when the deed and PMDT are recorded at the same time (not necessary to be at the same minute), but not when there are two weeks between the recordings. Where the actual cut off time is between the same time and two weeks is anybody's guess. A good rule of thumb for our purposes is that there be nothing recorded between the deed and PMDT to be considered the "same transaction".

One trick to look out for involves a PMDT that is also a construction loan. In Dalton Moran Shook,Inc v. Pitt Development Company, 113 N.C. App. 707, 440 S.E.2d 585 (1994), the Court of Appeals held that the purchase money portion of the loan received priority under instantaneous seisin, but that the future advances for the construction portion of the loan did not receive priority and were subject to prior liens against the purchaser. We would have to except to these prior liens in this situation. In review, a PMDT can give a lender priority over prior judgments and liens against the purchaser and can alleviate the requirement that the spouse sign the PMDT when the property is held only in the name of the other spouse. In order for this to work, we must know that the deed and PMDT were part of the "same transaction" and that the PMDT secures purchase money.

October 29, 1997 - Supplement on this topic from the North Carolina Education Task Force...

N.C.G.S. Section 39-13 states "The purchaser of real estate who does not pay the whole of the purchase money at the time when he or she takes a deed for title may make a mortgage or deed of trust for securing the payment of such purchase money, or such part thereof as may remain unpaid, which shall be good and effectual against his or her spouse as well as the purchaser, without requiring the spouse to join in the execution of such mortgage or deed of trust."  Please note that this is referring to transactions in which only one spouse takes title to the property and simultaneously executes a deed of trust/mortgage to secure the purchase price or balance due thereof.

Regardless, attorneys typically obtain the signature of the "nonowning" spouse on a purchase money deed of trust/mortgage.  When you are confronted with a purchase situation in which a nonowning spouse does not execute a purchase money security instrument, remember that you may be able to rely on this statute to insure the deed of trust/mortgage without exception for the marital rights of the nonsigning spouse.  This does not apply to refinance transactions and construction loans wherein the funds are not used to purchase the property.  (In your typical construction loan, only a small portion of the funds are used to purchase the property.  The remainder is used for improvements.)  

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