Vendor’s Lien

Definition

A Vendor’s Lien, often referred to as a Purchase Money Mortgage, is a lien placed by the seller on the property sold to secure the unpaid purchase price. This type of lien provides the seller with a form of security that ensures they will receive payment for the property. In the event the buyer fails to adhere to the terms of payment, the vendor’s lien allows the seller to reclaim the property or enforce legal measures to recover the full purchase price.

Examples

Residential Property Sale: A homeowner sells their house but the buyer can only pay a portion of the purchase price upfront. The seller agrees to finance the remaining balance and places a vendor’s lien on the property to ensure they receive full payment.
Commercial Real Estate Transaction: A small business owner purchases a commercial building and agrees to make payments over time. The seller, to protect their interest, places a vendor’s lien on the property until the full amount is paid.
Land Sale: A seller agrees to a land contract where the buyer will pay over a series of installments. The seller places a vendor’s lien to hold a security interest in the property until the installments are fully paid.

Frequently Asked Questions (FAQs)

What happens if the buyer defaults on payment under a vendor’s lien?

If the buyer defaults on the payment, the vendor’s lien allows the seller to initiate foreclosure proceedings or repossess the property as a means of recuperating the amount owed.

Can a vendor’s lien be transferred to another party?

Yes, a vendor’s lien can be assigned to another party if the original seller decides to transfer the rights of the lien to a different entity or person.

Is a vendor’s lien the same as a mortgage?

While both provide security interests in real estate transactions, a vendor’s lien is specifically related to the sale of the property being financed by the seller, whereas a mortgage typically involves third-party financing.

How does a vendor’s lien affect the property title?

A vendor’s lien appears on the property title indicating that there is an outstanding financial obligation. This may affect the buyer’s ability to resell or refinance the property until the lien is paid off.

Do vendor’s liens apply to both real and personal property?

Vendor’s liens primarily apply to real property. However, similar liens may exist in transactions involving personal property but are often termed differently.

Purchase Money Mortgage

A Purchase Money Mortgage is a form of seller financing where the seller directly finances the purchase of the property, creating a mortgage in favor of the seller until the buyer pays the full purchase price.

Foreclosure

The legal process by which a lender or lienholder can reclaim ownership and possession of a property due to the borrower’s failure to make payments as agreed.

Seller Financing

A real estate agreement in which the seller finances the sale for the buyer, without the involvement of a traditional mortgage lender, often involving promissory notes and security interests like a vendor’s lien.

Lien

A legal right or interest that a lender or issuer has in the borrower’s property, granted in exchange for the provision of some loan or service, typically used as collateral.

Online Resources

Nolo - Legal Encyclopedia Understanding Purchase Money Mortgages and Seller Financing
Investopedia Purchase Money Mortgage Definition
U.S. Small Business Administration (SBA) Understanding Different Types of Financing
Real Estate Investing for Dummies on Kindle: Amazon: Real Estate Investing for Dummies

References

Investopedia. “Vendor’s Lien.” Retrieved from Investopedia.
Nolo. “Understanding Purchase Money Mortgages and Seller Financing.” Retrieved from Nolo.
U.S. Small Business Administration (SBA). “Understanding Different Types of Financing.” Retrieved from SBA.
Eric Tyson & Robert S. Griswold. “Real Estate Investing For Dummies.” John Wiley & Sons, Inc. 2019.

Suggested Books for Further Studies

“Real Estate Investing For Dummies” by Eric Tyson and Robert S. Griswold
“The Book on Investing In Real Estate with No (and Low) Money Down” by Brandon Turner
“Real Estate Finance & Investments” by William Brueggeman and Jeffrey Fisher
“Real Estate Principles: A Value Approach” by David C. Ling and Wayne R. Archer
“Seller Financing and Real Estate Notes in the Dodd-Frank Era: by SellerFinanced.com” by Fred Rewey

Real Estate Basics: Vendor’s Lien Fundamentals Quiz

### What is a Vendor's Lien also known as? - [ ] Deed of Trust - [ ] Standard Mortgage - [ ] Equity Lien - [x] Purchase Money Mortgage > **Explanation:** A Vendor's Lien is synonymous with a Purchase Money Mortgage. Both terms describe a situation where the seller finances the buyer and holds a lien on the property until full payment is made. ### What does a Vendor’s Lien primarily secure? - [ ] The interest rate of the mortgage - [ ] Seller’s commission - [ ] Improvements made to the property - [x] The unpaid purchase price > **Explanation:** A Vendor's Lien secures the seller's interest in the property by ensuring the unpaid purchase price. It provides security that the seller will be paid in full. ### What can the seller do if the buyer defaults under a Vendor’s Lien? - [ ] Request a loan modification - [ ] Remove the lien without consequence - [x] Initiate foreclosure proceedings or repossess the property - [ ] Adjust the property taxes > **Explanation:** If the buyer defaults, the seller can initiate foreclosure or repossess the property under a Vendor's Lien to recover the owed amount. ### In what type of property transaction is a Vendor’s Lien most commonly used? - [ ] Personal property sales - [x] Real estate transactions - [ ] Equipment leasing - [ ] Intellectual property deals > **Explanation:** Vendor’s Liens are most commonly used in real estate transactions to secure the unpaid purchase price of the property sold. ### Can a Vendor's Lien affect the property title? - [x] Yes, it indicates an outstanding financial obligation - [ ] No, it has no impact on the property title - [ ] It only affects property tax records - [ ] Only if the purchase price exceeds property value > **Explanation:** A Vendor's Lien appears on the property title indicating the outstanding financial obligation, and this can affect the buyer’s ability to resell or refinance the property until the lien is resolved. ### Is a Vendor’s Lien applicable to both personal and real property? - [ ] Always yes - [ ] Always no - [x] Primarily real property, although similar liens exist for personal property - [ ] Only rental properties > **Explanation:** Vendor’s Liens primarily apply to real property transactions, but analogous liens may also apply in the case of personal property, often termed differently. ### Who typically holds a Vendor's Lien? - [ ] The property's new owner - [ ] A traditional mortgage lender - [x] The seller of the property - [ ] A government agency > **Explanation:** The seller holds the Vendor's Lien until the buyer fulfills the payment obligations stipulated during the sale of the property. ### What type of financing involves the utilization of a Vendor’s Lien? - [ ] Commercial loans - [ ] Credit card debt - [x] Seller financing - [ ] Government grants > **Explanation:** Seller financing typically involves the utilization of a Vendor’s Lien, where the seller finances the purchase and secures their interest through a lien on the property. ### What happens to the Vendor’s Lien when the purchase price is fully paid? - [ ] It converts into a mortgage deed - [x] It is removed from the property title - [ ] It remains as an equity investment - [ ] It affects the utility payments of the property > **Explanation:** Once the purchase price is fully paid, the Vendor's Lien is removed from the property title, freeing the property from the lien. ### What is one major benefit of a Vendor's Lien for the seller? - [ ] Reduction in property taxes - [ ] Lower insurance premiums - [x] Security for the unpaid purchase price - [ ] Increased property value > **Explanation:** The major benefit for a seller with a Vendor's Lien is that it provides security for the unpaid purchase price, allowing them to reclaim the property or enforce payment if the buyer defaults.