Daily Development for Thursday, April 13, 1995 by: Patrick A. Randolph, Jr. Professor of Law UMKC School of Law Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last five years, these Reports annually have been collated, updated, indexed and bound into the Annual Survey of Developments in Real Estate Law, volumes 1-5, published by the ABA Press. The Annual Survey volumes are available for sale to the public. Contact Shawn Kaminsky at the ABA. (312) 988 5260. Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it. MORTGAGES; PURCHASE MONEY PRIORITY; VENDOR'S PRIORITY: Where purchaser of property executed two mortgages on the same day, one in favor of seller and one in favor of institutional lender, following default and foreclosure of the mortgage, the seller's purchase money mortgage takes priority over the institutional lender's purchase money mortgage even though the institutional lender's mortgage was recorded a day earlier. Giragosian v. Clement, 604 N.Y.S.2d 983 (App. Div. 1993). Both mortgages were executed on the same date. The court applied the common law rule that when a vendor receives a purchase money mortgage the lien of such mortgage has priority over all liens although they are prior in time. The end result of this case was that the vendor foreclosed its mortgage extinguishing the lien of the institutional lender. Note: In this classically terse New York Supp opinion, the court does not indicate whether either of the mortgagees was aware of the other, although logically one would think they would be. Comment: Typically the seller is not only aware of the institutional financing in these situations, but is also aware that the institutional lender requires a first priority position. The court here takes the view that the seller can still get the advantage of a common law rule written for another era and, frankly, other circumstances. The result in this case is that the institutional lender must take concrete steps to establish its priority by obtaining a specific subordination of the vendor's mortgage. Is this the best rule? Perhaps it is enough to say that this is a situation where careful parties can avoid problems altogether, and careless parties must live with whatever rule we make. A clear rule avoids endless litigation, and the institutional lender, if it knew of the seller, would have been able to avoid the pickle it got into. On the other hand, where the seller knows that the institutional lender is expecting a first mortgage, should the seller be estopped from taking advantage of its common law priority? And where neither lender has actual knowledge of the other, would pro rata priority be more fair? Pat Randolph randolpp@smtpgate.ssb.umkc.edu