A purchase money mortgage in Florida is a mortgage that secures the loan a buyer uses to acquire the property itself, whether the seller carries the financing or a bank funds the purchase. Its defining feature under Florida law is priority: recorded properly, it jumps ahead of nearly every other claim against the buyer, including judgment liens that were on record before the sale ever closed.
What Qualifies as a Purchase Money Mortgage
Florida has no statute that defines the term. It comes from common law, and the concept covers any mortgage securing a loan whose proceeds went to buy the property serving as collateral. Florida Statute 697.01 defines mortgages generally, treating any written conveyance intended to secure money as a mortgage subject to foreclosure rules, but it does not single out purchase money mortgages for separate treatment.1Florida Senate. Florida Code 697.01 – Instruments Deemed Mortgages The special status comes from case law developed over nearly a century.
Two versions exist. A vendor purchase money mortgage is one the seller takes back directly: the seller conveys title and accepts a mortgage for the unpaid balance of the price. A third-party purchase money mortgage is one where a bank or other institutional lender funds the purchase, with the loan proceeds going straight to the acquisition. Both types qualify for purchase money priority. When the two compete on the same property, the vendor’s mortgage generally wins under the Restatement (Third) of Property: Mortgages, even if the third-party lender recorded first, so long as each side knew of the other at closing.
Recording and the Taxes Due at Closing
Recording in the county where the property sits is not optional. Under Florida Statute 695.01, an unrecorded mortgage is unenforceable against creditors and later purchasers who paid value without notice.2Justia Law. Florida Code 695.01 – Conveyances and Liens to Be Recorded Recording is what locks in the priority date. An unrecorded purchase money mortgage can lose its superior position to a later lien that does make it onto the public record, so filing promptly after closing is essential.
Two taxes come due at recording. The documentary stamp tax runs 35 cents per $100 of the secured debt, applied to both the mortgage and the promissory note, with the note tax capped at $2,450.3Florida Senate. Florida Code 201.08 – Tax on Promissory or Nonnegotiable Notes, Written Obligations, and Mortgages On a $300,000 mortgage, that is $1,050 on the mortgage and another $1,050 on the note. A separate one-time nonrecurring intangible tax of 2 mills, or $2 per $1,000, applies to obligations secured by a mortgage on Florida real property.4Florida Senate. Florida Code 199.133 – Levy of Nonrecurring Tax On that same $300,000 loan, the intangible tax adds $600. Together the recording taxes can add several thousand dollars to a closing.
Priority Over Older Liens Against the Buyer
This is the rule that makes purchase money mortgages worth understanding. Florida’s Supreme Court established in 1930 in Van Eepoel Real Estate Co. v. Sarasota Milk Co. that a purchase money mortgage made simultaneously with the conveyance takes precedence over any lien arising through the buyer, even a lien earlier in time. Florida appellate courts have applied that rule to hold that a purchase money mortgage sits senior to previously recorded judgment liens against the buyer.5Justia Law. BancFlorida v. Hayward, 1997
The reasoning: the buyer never actually held the property free of the mortgage. Title and the mortgage lien attach in the same instant. A judgment creditor’s lien can only reach property the debtor actually owns, and the debtor never owned this property without the encumbrance. That is how a purchase money mortgage can leapfrog liens recorded years before the sale.
The priority holds only if the mortgage is recorded. An unrecorded purchase money mortgage remains vulnerable to later purchasers or lienholders who took without notice of it.2Justia Law. Florida Code 695.01 – Conveyances and Liens to Be Recorded Sloppy paperwork can destroy an otherwise unassailable position.
Federal Rules for Sellers Who Carry the Financing
A seller who finances the buyer’s purchase is providing consumer credit, and the Dodd-Frank Act amendments to the Truth in Lending Act treat many seller-financiers as “loan originators” subject to licensing and ability-to-repay requirements. Two exemptions cover most individual sellers, but each has specific conditions.
One-Property Exemption
A natural person, estate, or trust that finances only one property sale in any 12-month period is not a loan originator if:
- The seller owns the property securing the financing.
- The seller did not build the residence, or act as contractor for building it, on the property.
- The payment schedule does not produce negative amortization, though balloon payments are allowed.
- The loan carries a fixed rate, or an adjustable rate that does not reset for at least five years, with reasonable annual and lifetime caps.
Under this exemption, the seller does not have to verify the buyer’s ability to repay.6eCFR. 12 CFR 1026.36 – Prohibited Acts or Practices and Certain Requirements for Credit Secured by a Dwelling
Three-Property Exemption
Any type of seller, including LLCs and corporations, that finances three or fewer property sales in a 12-month period can also avoid loan originator status, with tighter requirements:
- The financing must be fully amortizing, with no balloon payments.
- The seller must determine in good faith that the buyer has a reasonable ability to repay.
- Rate rules match the one-property exemption: fixed rate or an adjustable rate that does not reset for at least five years, with reasonable caps.
Any adjustable rate under either exemption must be tied to a widely available index such as U.S. Treasury rates or SOFR.6eCFR. 12 CFR 1026.36 – Prohibited Acts or Practices and Certain Requirements for Credit Secured by a Dwelling A seller who runs past these limits without a mortgage originator license risks enforcement action from the Consumer Financial Protection Bureau.
Tax Treatment for the Seller-Lender
A seller who takes back paper generally reports the sale as an installment sale for federal income tax purposes. Rather than recognize the entire gain in the year of sale, the seller reports a proportionate share of gain as each payment arrives. IRS Publication 537 sets out the mechanics, including the gross profit percentage applied to each installment.7Internal Revenue Service. Publication 537 (2025), Installment Sales
Interest rate matters. If the note rate is too low, the IRS imputes interest at the applicable federal rate and recharacterizes part of each principal payment as interest income. The test rate depends on term: short-term AFR for loans of three years or less, mid-term AFR for loans between three and nine years, and long-term AFR for loans longer than nine years.7Internal Revenue Service. Publication 537 (2025), Installment Sales For seller-financed sales of $7,296,700 or less, the test rate is capped at 9% compounded semiannually, which in practice means the AFR floor almost always controls. The IRS publishes updated AFRs monthly.8Internal Revenue Service. Applicable Federal Rates
Sellers must also report interest received. If the buyer occupies the property as a personal residence, the seller reports the buyer’s name, address, and Social Security number on Schedule B of Form 1040. Failing to report or charging below-market interest can also affect the buyer’s mortgage interest deduction.
Foreclosure, Deficiency, and Redemption
Florida is a judicial foreclosure state, so a lender must file suit and obtain a court judgment before selling the property. The process typically runs several months to over a year, depending on whether the borrower contests and how busy the court’s docket is. Seller-lenders and institutional lenders alike follow the procedures in Chapter 702 of the Florida Statutes.
Florida does not immunize purchase money borrowers from deficiency judgments. Under Florida Statute 702.06, a court has discretion to enter a deficiency decree when the sale proceeds fall short of the debt. For owner-occupied residential property, the deficiency cannot exceed the difference between the judgment amount and the fair market value on the date of sale. A property with a homestead tax exemption on record before the foreclosure filing is presumed owner-occupied. The lender may also sue at common law for a deficiency, unless the foreclosure court already ruled on the deficiency claim.9Online Sunshine. Florida Code 702.06 – Deficiency Decree and Common-Law Suit to Recover Deficiency Unlike Arizona or California, Florida does not bar deficiency judgments on purchase money mortgages for owner-occupied homes.
Borrowers keep a right of redemption until the clerk of court files the certificate of sale or the time specified in the foreclosure judgment, whichever comes later. Redemption requires paying the full judgment amount, including the accelerated balance and the lender’s reasonable attorney’s fees and foreclosure costs.10Online Sunshine. Florida Code 45.0315 – Right of Redemption Once the certificate of sale is filed, the right ends. Florida has no post-sale statutory redemption period.
Practical Tradeoffs for Buyers and Sellers
For buyers, a purchase money mortgage can be the only realistic path to closing when conventional financing falls through. Seller financing tends to allow more flexible underwriting: a smaller down payment, or credit issues a bank would reject. Under the one-property exemption, the seller is not even required to verify the buyer’s ability to repay. The tradeoff is that seller-financed rates typically run higher than prevailing bank rates, and terms may include shorter amortization or balloon provisions that put refinancing pressure on the buyer later.
For sellers, priority makes carrying a purchase money mortgage safer than holding a second mortgage on property the buyer already owned before the transaction. If the buyer defaults, the seller’s lien sits ahead of virtually every pre-sale claim against the buyer. The real costs are the documentary stamp and intangible taxes at recording, the administrative work of collecting payments and issuing tax documents, and exposure to a lengthy judicial foreclosure if the loan sours. Compliance with the Dodd-Frank exemptions matters too: writing more than three seller-financed loans in a year without a mortgage originator license, or including negative amortization under the one-property exemption, can invite federal enforcement.
Both sides benefit from clear documentation covering interest rate, payment schedule, default triggers, late-payment penalties, and payoff statement procedures. Florida courts enforce the terms as written, and ambiguity tends to hurt whichever party drafted the agreement. For any seller-financed deal of real size, having a real estate attorney draft or review the note and mortgage costs far less than litigating a poorly worded one.