A purchase money deed of trust is accorded the highest priority over all other liens incurred by the borrower that pre-date the purchase of the property.
Purchase Money Deed of Trust
Any time all or part of the purchase price for property is secured by a deed of trust recorded against the property, the deed will be considered a "purchase money deed of trust."
Read More: What Is a Second Trust Deed?
Same Transaction Requirement
A deed can only be considered a purchase money deed if it is recorded as part of the same transaction for the debt it secures; i.e., when the loan is made to purchase the property, the deed must be signed and recorded as part of the same transaction to be considered a purchase money deed.
If the deed is not recorded, it will not be given the priority of a purchase money deed even though the loan provided in exchange for the deed was used to purchase the property.
A parcel of property can have any number of liens recorded against it, both voluntary (e.g., a mortgage or deed of trust) or involuntary (e.g., a judgment or mechanic's lien). Even if you do not own real estate, a lien for an unpaid judgment or taxes can still be recorded against you in the county recorder's office.
The general rule is that a lien's priority over other liens is determined by the date of recording with the county recorder's office. The earlier recorded lien has priority over all other liens recorded at a later date. However, in the case of a purchase money deed of trust, the general rule of first-in-time lien priority does not apply and the purchase money deed will take priority over all other liens incurred by the purchaser, regardless of when they were recorded.
Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.