Full access allows:
- Solve all tests online without limits;
- Remove all advertisements on website;
- Adding questions to favorite list;
- Save learning progress;
- Save results of practice exams;
- Watching all wrong answered questions.
28. Who is entitled to the $5,000?
There is no applicable statute.
After the expenses of the sale and the balance due to the bank have been paid, $5,000 remains in the sale proceeds. The outstanding balance of the credit union loan is $20,000. The man and the credit union both claim the $5,000.
The man moved into the house and made the necessary repairs. He later defaulted on the debt to the bank, and the bank initiated judicial foreclosure proceedings, naming both the man and the credit union as parties to the action. An outside party acquired the house at the foreclosure sale.
A man purchased a house that needed substantial repairs. The man financed the purchase of the house by borrowing funds from a bank. He signed a note to the bank and secured repayment of the loan with a mortgage. After purchasing the house, the man borrowed money from his credit union to make the repairs. The man signed a note to the credit union; this note was also secured by a mortgage on the house. Both mortgages were promptly recorded in the order granted. The man was personally liable on both loans.
Comments (0)
There are no comments at the moment. If you found an error or think question is incorrect, tell everyone about it
Only signed in users can write comments
Signin
Foreclosure is a process by which the mortgagor's interest in the property is terminated. The property is generally sold to satisfy the debt in whole or in part. Generally, the priority of the mortgage is determined by the time it was placed on the property. When a mortgage is foreclosed, the buyer at the sale will take title as it existed when the mortgage was placed on the property. Thus, a foreclosure will terminate interests junior to the mortgage being foreclosed, but will not affect senior interests.
Junior mortgages, liens, leases, easements, and all other interests will be wiped out if they are junior to the mortgage being foreclosed. If a lien senior to that of the mortgagee is in default, the junior mortgagee has the right to pay it off in order to avoid being wiped out by its foreclosure. Thus, those with interests subordinate to those of the foreclosing party are necessary parties to the foreclosure action. Failure to include a necessary party results in the preservation of the party's interest despite foreclosure and sale.
Foreclosure does not affect any interest senior to the mortgage being foreclosed. The buyer takes subject to such an interest and does not become personally liable on such senior investments.
The proceeds of the foreclosure sale are used, first, to pay expenses of the sale, attorneys' fees, and court costs, and then to pay the principal and accrued interest on the loan that was foreclosed, next to pay off any junior liens or other junior interests in the order of their priority, and finally, any remaining proceeds are distributed to the mortgagor. 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.
Under the doctrine of the equitable right of redemption, at any time prior to the foreclosure sale, the mortgagor has the right to redeem the land or free it of the mortgage by paying off the amount due, together with any accrued interest. A mortgagor's right to redeem her own mortgage cannot be waived in the mortgage itself. The right of redemption is extinguished once the foreclosure has occurred.
A is correct. After the man's debt to the bank and the expenses were fully paid from the foreclosure sale, the remaining $5,000 must go to the next junior interest, which is the credit union. As the mortgagor, the man is junior to the credit union and will only be entitled to remaining proceeds, if any, after other security interests have been paid. In other words, after the sale, expenses, and security interests (both senior and junior interest holders) are satisfied by the proceeds, only then would the man be eligible to receive money. Because the outstanding balance with the credit union is $20,000 and the remaining proceeds total $5,000, the entire amount will go to the credit union and the man will receive nothing.
B is incorrect. This answer reaches the correct answer with the wrong reasoning. The credit union is entitled to the $5,000, but not because the man is personally liable for the debt. Although the man was personally liable on both loans, as the mortgagor, he will not take priority over the credit union when foreclosure proceeds are disbursed. The credit union is junior to the bank but senior to the man, regardless of the fact that he is personally liable.
C is incorrect. The man's equitable right of redemption does not apply for two reasons. First, that doctrine would have given the man the right to pay a sum of money and redeem title, not be given proceeds from a foreclosure sale. Second, he could have only invoked equitable redemption prior to the foreclosure sale. Once the foreclosure occurred, this right was extinguished.
D is incorrect. The party who received title following the judicial foreclosure sale is irrelevant to whether the man or the credit union should be first in priority for remaining proceeds from the foreclosure sale.