Question 1

What is a purchase money mortgage in Florida?

Accepted Answer

A purchase money mortgage (PMM) is a mortgage given by the buyer to the seller (or a third-party lender) as part of the purchase price of the property. In Florida: a PMM from the seller (seller financing) means the seller acts as the lender and the buyer makes payments to the seller instead of a bank. A PMM from a lender is any mortgage used to finance the purchase of the property (as opposed to a refinance or home equity loan).

Question 2

What is the significance of a PMM in Florida?

Accepted Answer

Significance: homestead protection (a PMM is an exception to the homestead exemption: while the homestead is generally protected from creditors, a PMM can be foreclosed because the mortgage was used to purchase the homestead), priority (a PMM may have priority over judgment liens that existed before the purchase), and deficiency (the lender can seek a deficiency judgment if the foreclosure sale proceeds are less than the outstanding balance). Seller-financed PMMs allow: buyers who cannot qualify for traditional financing to purchase property, and sellers to earn interest on the purchase price.

Question 3

What are the risks of a seller-financed PMM in Florida?

Accepted Answer

Risks for the seller: buyer default (the seller must foreclose to recover the property; foreclosure takes 6-18 months in Florida), property deterioration (the buyer may not maintain the property), and subordination (the seller’s PMM is typically subordinate to a first mortgage from a lender). Risks for the buyer: higher interest rate (seller financing often has a higher rate than traditional lending), balloon payment (the note may require a large lump sum payment after a few years), and due-on-sale (the note may restrict the buyer from selling without paying off the PMM).

Purchase Money Mortgage: in Florida

Purchase Money Mortgages in Florida

Types

Legal Significance

Risks

Related Terms

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