Under the paid-value rule for mortgages, when is a mortgagee not considered to have paid value?

• A. When the mortgage is not given simultaneously with the loan (i.e., after the loan is created)
• B. When the mortgage is given simultaneously with the loan
• C. When the mortgage is recorded late
• D. When the mortgage is a refinance

Answer: (B)

The paid-value rule focuses on whether the lender actually provides value in connection with the loan through the mortgage instrument. If the loan funds are advanced at the same moment the mortgage is created, the value the lender is delivering to the borrower comes from the loan proceeds themselves, not from the mortgage instrument as a separate payment. In that situation, the mortgagee is not considered to have paid value for the mortgage because the financing is provided by the loan, not by a separate payment tied to the mortgage document. That’s why giving the mortgage simultaneously with the loan is the scenario where the mortgagee is not deemed to have paid value.