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A Purchase Money Loan is a Purchase Money Loan Regardless of When It Funds

Debt Collection, Mortgage & Lending Law, and Real Estate Law by Peter N. Brewer, Esq.

Recently, a California appellate court held that a purchase money loan is a purchase money loan regardless of when the loan proceeds are transferred to the borrower.  In Enloe v. Kelso, a court held that although proceeds of a loan were delivered to the borrower after escrow closed and the sale was consummated without those funds, the loan was still considered a purchase money loan.

Facts of the Case

The Enloes sold a home to Casey Kelso for $1,900,000.  As part of the sale, the Enloes agreed to a seller carry-back loan of $93,750 to be in third position behind institutional loans.  However, the first lender, Washington Mutual, refused to fund its loan if the seller was securing a loan against the property.  In order to close the sale the Enloes and Kelso agreed that the third deed of trust would be recorded after close of escrow but that Kelso would execute a promissory note prior to close of escrow.  Also prior to the close of escrow, the Enloes sent a personal check to escrow to help fund the sale.  However, the check was rejected because it was a personal check.  The escrow closed without the Enloes’ funds.  After the close of escrow, but on the same day, the Enloes (sellers) sent Kelso (buyer) a cashier’s check for $93,750.

After a few years went by, Kelso completed a short sale of the property, which was agreed to by Enloes.  The Enloes received $22,500 from the sale, far below the amount owing on the loan, and filed suit to recover the remainder.


On appeal, the Court sustained the lower court’s decision and held that although the funds were sent to the borrower after escrow closed, the clear intent of the parties was that the loan was for the purchase of the property.  Being for the purchase of the property, it was classified as a purchase money loan and therefore there could be no deficiency, which is the unpaid amount of a secured loan.  California law prohibits collection of a deficiency under certain circumstances, among them seller financing.  The court noted that there was nothing in Code of Civil Procedure 580b that required the money to be transferred prior to the close of escrow.

Further, the Court explicitly rejected the argument that the loan was not purchase money simply because Kelso was able to complete the sale without the funds.  In addition, the Court did not give any weight to the fact that the escrow instructions did not include the Enloes’ loan nor the fact that the senior lender refused to fund a loan if the Enloes were also providing a loan.


California Courts have been steadily providing more guidance on purchase money loans and the anti-deficiency statutes.  Here, the Court refused to reward the seller-lender just because a borrower tried to circumvent another lender’s instructions.

At Brewer Offord & Pedersen LLP, we have had substantial experience with distressed loans.  If you have questions regarding the collection of a judgment, we would be happy to help.  We can be reached at (650) 327-2900 or on the web at

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