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35. If nothing else has happened since the conveyance to the seller, is the investor's mortgage still valid?
The developer made all payments on both mortgage loans for several years but eventually defaulted on the loan from the seller, who threatened to initiate foreclosure proceedings. To avoid the foreclosure, the developer executed a deed in lieu of foreclosure conveying the land back to the seller. But before the developer delivered the deed to the seller, it notified the investor of the proposed conveyance and gave her the option to cure the developer's default on the seller's loan. The investor declined to do so, and the developer delivered the deed to the seller.
A developer financed the purchase of a tract of vacant land with a mortgage loan from the seller. Two years later, at a time when the land remained vacant, the developer took out a second mortgage loan from an investor to construct self-storage units on the land. Both mortgages were promptly recorded in the order in which they were executed.
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A is incorrect. The status of the investor, the junior lienholder, is not affected by that lienholder's failure to cure the mortgagor's default.
B is incorrect. It does not matter whether the senior lien was a purchase money mortgage, or a mortgage for some other purpose. A deed in lieu of foreclosure does not extinguish subsequent mortgages.
D is incorrect. The purpose for obtaining the junior mortgage is irrelevant. It has no effect on whether the mortgage is extinguished by the deed in lieu of foreclosure.