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17. At the appropriate stage of the foreclosure action, which party will the court decide is responsible for payment of the deficiency?
There is no applicable statute in the jurisdiction other than the statute relating to foreclosure proceedings.
The developer made the monthly mortgage payments of principal and interest for six payments but then stopped payments and defaulted on the mortgage obligation. The lender properly instituted foreclosure procedures in accordance with the governing law. After the foreclosure sale, there was a $10,000 deficiency due to the lender. Both the landowner and the developer had sufficient assets to pay the deficiency.
A year later, the landowner conveyed the same tract to a developer by a deed that expressly stated that the conveyance was subject to the mortgage to the lender and that the grantee expressly assumed and agreed to pay the mortgage obligation as part of the consideration for the purchase. The mortgage was properly described in the deed, and the deed was properly executed by the landowner; however, because there was no provision or place in the deed for the developer to sign, he did not do so. The developer promptly recorded the deed.
A landowner borrowed $100,000 from a lender and executed a valid mortgage on a commercial tract of land to secure the debt. The lender promptly recorded the mortgage.
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If the mortgagor sells the property and conveys a deed, a grantee takes subject to the mortgage, which remains on the land. Often the grantee signs an assumption agreement, promising to pay the mortgage loan. If she does so, she becomes primarily liable to the lender, while the original mortgagor becomes secondarily liable as a surety. However, the mortgagee may opt to sue either the grantee or the original mortgagor on the debt. If the mortgagee and grantee modify the obligation, the original mortgagor is completely discharged from liability.
Foreclosure is a process by which the mortgagor's interest in the property is terminated. Generally, the priority of a mortgage is determined by the time it was placed on the property. When a mortgage is foreclosed, it will terminate interests junior to the mortgage being foreclosed. If the proceeds of the sale are insufficient to satisfy the mortgage debt, the mortgagee can bring a personal action against the mortgagor/debtor for the deficiency.
A is correct. The deed stated that the conveyance was subject to the lender's mortgage and that the grantee expressly assumed and agreed to pay the mortgage obligation as part of the consideration. While the developer did not sign the deed, the developer accepted the deed and recorded it, thereby agreeing to the mortgage assumption. When the developer assumed the mortgage obligation, the developer became personally liable to the lender, and the landowner became merely a surety. The developer, having sufficient assets to pay the deficiency judgment, must do so.
B is incorrect. Although this response correctly concludes that the developer is responsible for payment of the deficiency, it misstates the reason. It does not matter whether or for how long the developer paid on the mortgage. As stated above, the deed to the developer stated that the conveyance was subject to the lender's mortgage and that the grantee expressly assumed and agreed to pay the mortgage obligation as part of the consideration. The developer, having sufficient assets to pay the deficiency judgment, must do so.
C is incorrect. The developer received a deed poll (a deed that is signed only by the grantor, in this case, the landowner). The grantee of a deed poll need not sign the deed, but if the grantee accepts the deed, he or she accepts all conditions in it. The developer did accept the deed and recorded it. The deed stated that the conveyance was subject to the lender's mortgage and that the grantee (the developer) expressly assumed and agreed to pay the mortgage obligation as part of the consideration. When the developer assumed the mortgage obligation, the developer became personally liable to the lender, and the landowner became merely a surety. The developer, having sufficient assets to pay the deficiency judgment, must do so.
D is incorrect. In the deed to the developer, it was stated that the conveyance was subject to the lender's mortgage and that the grantee expressly assumed and agreed to pay the mortgage obligation as part of the consideration. The developer accepted the deed and recorded it, thereby agreeing to the mortgage assumption and becoming more than a mere guarantor of the obligation. When the developer assumed the mortgage obligation, the developer became personally liable to the mortgagee, and the landowner became merely a surety. The developer, having sufficient assets to pay the deficiency judgment, must do so.