Opinion ID: 1824073
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Heading: Purchase-Related AdvancesPurchase Money Mortgage Priority.

Text: Midland also argues it has a priority over Des Moines Lumber's mechanic's lien because it has a purchase money mortgage and Des Moines Lumber's mechanic's lien is limited to the extent of the interest held in the land by Stewart, the party for whose benefit the materials were furnished. See Iowa Code § 572.5. Because the mechanic's lien is limited to the interest held by Stewart, Midland urges the circumstances are similar to those in Ely Savings Bank v. Graham, 201 Iowa 840, 843, 208 N.W. 312, 314 (1926), where we held that the holder of a purchase money mortgage takes priority over all other parties claiming through the mortgagor. Des Moines Lumber claims this argument confuses the concept of attachment of mechanics' liens with the priority of mechanics' liens. Stewart acquired ownership interest in the lots by reason of its contract to purchase. Des Moines Lumber urges this interest supports the attachment of the mechanic's lien and its priority is then established under section 572.18. In 1876 we held a vendor, who took a mortgage from the purchaser to secure the purchase money, had a priority over the holders of mechanics' liens, who had commenced their work before the mortgage was delivered and recorded. Thorpe Bros. v. Durbon, 45 Iowa 192, 193 (1876). Although the purchaser became the equitable owner, [u]ntil the execution of the deed and mortgage the plaintiffs [vendors] held the legal title for their security, and afterwards they held the mortgage. In changing one form of security for another for the same debt no other lien could intervene and become paramount thereto. Id. at 193-94. See Annotation, Priority as Between Mechanic's Lien and Purchase-Money Mortgage, 73 A.L.R.2d 1407 (1960). If the vendor of real estate executes a deed to the purchaser and the purchaser simultaneously executes a mortgage and note for the purchase price, then the mortgage is a purchase money mortgage. The underlying principle of a purchase money mortgage is that upon the simultaneous execution of the deed and mortgage the title to the land does not for a single moment rest in the purchaser, but merely passes through his hands and without stopping, vests in the mortgagee. It follows, therefore, that no lien of any character can attach to the title of the mortgagee.... Keefe v. Cropper, 196 Iowa 1179, 1181, 194 N.W. 305, 306 (1923). See also 53 Am.Jur.2d Mechanics' Liens § 271, at 808-09 (1970) (doctrine of instantaneous seisin). Prior to the delivery of the deed, the vendor retains the legal title until the purchase price is paid; the purchaser has only an equitable interest. A subsequent purchaser or encumbrancer takes subject to the vendor's lien or right to the payment of the purchase price. The vendor holds legal title as security for the purchase price. The recorded legal title protects the vendor, as constructive notice to third persons. Marker v. Davis, 200 Iowa 446, 453, 204 N.W. 287, 290 (1925). Because record title is in the vendor, a person providing material and labor is charged with notice of the contents of the unrecorded sale contract. Queal Lumber Co. v. McNeal, 226 Iowa 637, 639, 284 N.W. 482, 484 (1939). If an owner of land agrees to sell the land and allows the purchaser to take possession of the property and make improvements on the premises, the vendor does not thereby authorize the purchaser to impose a lien upon the land, nor does the knowledge of the vendor of the improvements give the lien of the materialmen priority over the vendor's lien. See Schoeneman Lumber Co. v. Davis, 200 Iowa 873, 876, 205 N.W. 502, 503 (1925); 53 Am.Jur.2d Mechanics' Liens § 125, at 645 (1970). The purchaser is the equitable owner of the real estate and as such has the right to install improvements upon the land. The installation of any improvements on the premises under a contract with the vendee entitled the contractor to a mechanic's lien against the interests of such vendee in the real estate. Darragh v. Knolk, 218 Iowa 686, 688-89, 254 N.W. 22, 24 (1934). Although the vendor's interest in the land may be subject to a mechanic's lien if the purchaser is required to make improvements under the real estate contract, the mere knowledge of the making of improvements or the expectation that they will be made is not sufficient to give the mechanic's lien a priority over the vendor's lien. Id. at 688-90, 254 N.W. at 24. We have consistently held a purchase money mortgage is superior to a lien for improvements although the mortgage was not executed and recorded until after the material and labor had been provided. See Queal, 226 Iowa at 639, 284 N.W. at 484; Magnesite Prod. Co. v. Bensmiller, 207 Iowa 1303, 1306, 224 N.W. 514, 516 (1929); Marker, 200 Iowa at 454, 204 N.W. at 291. The mechanic's lien statute in effect when these cases were decided provided a mechanic's lien should be preferred to all other liens except liens which the contractor or subcontractor, as the case may be, has actual or constructive notice before the commencement of the work or the furnishing of material. In 1943 the legislature deleted this provision and added except liens of record prior to the time of the original commencement of the work or improvements. 1943 Iowa Acts ch. 260, § 1. The words liens of record include the concept of constructive notice. If the vendor's title is of record, contractors and others have constructive notice of the vendor's interest. Marker, 200 Iowa at 454, 204 N.W. at 290. Contractors have constructive notice of all information contained in recorded documents and have a duty of inquiry concerning circumstances disclosed in those records. Clemens Graf Droste Zu Vischering v. Kading, 368 N.W.2d 702, 709 (Iowa 1985). The statutory amendment in 1943 did not modify the principles of constructive notice. Because the words liens of record mean substantially the same thing as constructive notice, the 1943 amendment did not alter the priority status of a purchase money mortgage as expressed in our prior opinions. The fact Midland was not the owner of the lots does not deprive it of the protection given a purchase money mortgage. It is immaterial whether the mortgage runs to the vendor, as mortgagee, or to a third person, who as a part of the same transaction, advances the purchase money. In re Lewis, 230 Iowa 694, 700, 298 N.W. 842, 845 (1941). The purchase money mortgage lien given to Midland protects the unpaid balance of the purchase price. The mortgage lien priority recognized in the court's summary judgment for recovery of the payments made on the remaining contract balance is affirmed. However, the judgment should be modified to exclude the costs for title opinions, title search, recording fees, and loan origination fees. These advances are not protected by the purchase money lien.