Maria wants to buy a small rental property listed at $200,000. Her bank will only lend $160,000 toward the deal, and she has $20,000 in cash. The seller, eager to close, agrees to take back a $20,000 second mortgage at 6% interest amortized over five years to bridge the gap. At the closing table, the seller hands Maria a deed and Maria simultaneously signs the seller's promissory note secured by a mortgage on the same parcel — both transferred in the same closing. The seller's $20,000 financing instrument is best described as which of the following?
Correct Answer
A) Purchase-money mortgage
The seller's $20,000 note is created at the same instant Maria acquires the property, with proceeds going directly toward her purchase. Any mortgage made as part of the same transaction in which the buyer acquires the property — whether by an institution or the seller — is a purchase-money mortgage.
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