The purpose of a purchase money mortgage is to take the place of cash for part of the price. The purchaser may not have sufficient cash to pay the full price over the existing mortgage, and the seller may be willing to leave part of the price as a loan to the purchaser.

In order that the seller may be protected from loss upon the loan, the purchaser makes the loan a lien upon the property. The purchaser gives his bond for the amount agreed upon and a purchase money mortgage pledging the property as security. No general rule can be made as to a safe amount to leave on purchase money mortgage. However, in any event the seller should always see that he receives enough cash to more than pay the cost of foreclosing the mortgage and to more than cover any depreciation in the property, accrued interest and unpaid taxes.

As to the purchase money mortgage, the contract should specify the date and manner of payment of the principal sum, the interest rate, interest payment dates, and the seller should require an appropriate form of bond and mortgage, such as in its incidental provisions will give him full protection; particularly with reference to default in the existing mortgage. For this reason also the contract should provide that the bond and mortgage be prepared by the seller's attorney. Since the purchase money mortgage is taken by the seller as an accommodation to the purchaser, it is customary to provide that the purchaser shall pay all expenses in connection with it, consisting of cost of drawing the instruments, the recording fees, the mortgage tax (if any) and the internal revenue stamps on the bond. The purchaser should always seek a provision that the purchase money mortgage shall be and remain subordinate to the present existing mortgage or any mortgage to secure a similar amount in event of payment thereof.

The following is an example of financial statement embracing all the parts:

The price is $20,000 payable as follows: $1,000 on the signing of this contract, the receipt of which is hereby-acknowledged.

$4,000 in cash on the delivery of the deed as hereinafter provided.

$10,000 by the purchaser taking title to the premises subject to a mortgage now a lien thereon for that amount due..............bearing interest at the rate of........per cent per annum, payable semi-annually on...............

and.................. (If purchaser assumes the mortgage add "which the purchaser shall assume and promise to pay.") $5,000 by the purchaser executing and delivering on the closing of title,this bond for that amount secured by his purchase money mortgage, payable

..................with interest from the date of closing title at the rate of

........per cent per annum, payable semi-annually.

Said bond and mortgage shall contain a provision that this mortgage shall be and remain subordinate to the present first mortgage, or in event of its payment, to any new mortgage for an amount not in excess thereof; to be drawn upon the usual (here insert "Title Co." or other identifying words) forms by the attorney for the seller at the purchaser's expense, who shall pay the recording fees, mortgage tax (if any) and for internal revenue stamps on the bond.