Legal Definitions - non-purchase-money

A non-purchase-money obligation refers to a debt or loan where the funds borrowed were not used to acquire the specific asset that is being offered as collateral for that loan. Instead, the borrower already owned the asset before taking out this particular loan, and they are using it to secure a new loan for a different purpose.

Here are some examples to illustrate this concept:

• Home Equity Line of Credit (HELOC)

  Imagine Maria has owned her home for fifteen years and has paid off a significant portion of her original mortgage. She decides to take out a Home Equity Line of Credit (HELOC) to fund a major kitchen renovation. She uses her existing home as collateral for this new line of credit.

  This HELOC is a non-purchase-money obligation because the funds from the HELOC are being used for renovations, not to buy the house itself. Maria already owned the house; she is simply leveraging its value to secure a new loan for a separate purpose.

• Business Loan Secured by Existing Equipment

  A small printing company, "Inkwell Press," needs capital to launch a new marketing campaign. The company already owns several high-value printing presses that are fully paid for. They approach a bank for a loan, offering these existing printing presses as collateral.

  This business loan is a non-purchase-money obligation. The loan funds are intended for marketing, not for purchasing the printing presses themselves. The presses were already assets of Inkwell Press before they sought this particular loan.

• Personal Loan Secured by a Paid-Off Vehicle

  John needs to cover an unexpected medical bill. He owns his car outright, having paid off his original car loan several years ago. He takes out a personal loan from a credit union, using his car's title as security for the loan.

  This personal loan is a non-purchase-money obligation. John is not using the loan money to buy the car; he already owns it. He is simply using his existing asset as collateral to secure funds for a different, unrelated financial need.