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8. The $200,000 surplus arising from the bid paid by the bank for the parking garage should be paid
The bank purchased the parking garage for an amount that is $200,000 in excess of the private lender's mortgage balance.
The bank purchased the hotel for $100,000 less than its mortgage balance.
The bank later brought an appropriate action for judicial foreclosure of its first mortgage on the hotel and of its judgment lien on the parking garage. The private lender was joined as a party defendant and appropriately counterclaimed for foreclosure of its mortgage on the parking garage, which was also in default. All procedures were properly followed and the confirmed foreclosure sales resulted as follows:
There is no other applicable statute, except the statute providing for judicial foreclosure of mortgages, which places no restriction on deficiency judgments.
A statute of the jurisdiction provides: «Any judgment properly filed shall, for 10 years from filing, be a lien on the real property then owned or subsequently acquired by any person against whom the judgment is rendered.»
A business owner owned a hotel, subject to a mortgage securing a debt the owner owed to a bank. The owner later acquired a nearby parking garage, financing a part of the purchase price by a loan from a private lender, secured by a mortgage on the parking garage. Two years thereafter, the owner defaulted on the loan owed to the bank, which caused the full amount of that loan to become immediately due and payable. The bank decided not to foreclose on the mortgage on the owner's hotel at that time, but instead brought an action, appropriate under the laws of the jurisdiction and authorized by the mortgage loan documents, for the full amount of the defaulted loan. The bank obtained and properly filed a judgment for that amount.
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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.
A is correct. This question is most easily answered by diagramming the amounts each party owes or is owed. After the judicial foreclosure sale of the hotel, the bank was still owed $100,000. After the foreclosure sale of the garage, the private lender was owed nothing and had a surplus of $200,000. After both foreclosures were completed, the owner owed $100,000 to the bank and owed nothing to the private lender.
B is incorrect. The private lender is owed nothing and cannot get any of the surplus.
C is incorrect. The private lender is owed nothing and is not entitled to any of the surplus.
D is incorrect. The bank, as a mortgagee, stands ahead of the owner in the line of priority and must receive all the money it is owed before the owner will be entitled to receive anything. Once the bank has been paid the remaining $100,000 it is owed, any surplus (which in this case is $100,000) will go to the owner.