Foreclosure - Next Generation Bar Exam
- What is the effect of foreclosure of a senior mortgage on a junior mortgage?
- It extinguishes the junior mortgage if the junior lienor is joined. The junior lienor then has a claim to any surplus proceeds.
- A first mortgagee forecloses and the property sells for $100,000, net of expenses. The first debt is $80,000 and a second is $30,000. How much does the second mortgagee receive?
- $20,000. After the first mortgage is paid, the remaining $20,000 goes to the second mortgagee.
- What is a deficiency judgment?
- A personal judgment against the mortgagor for the debt remaining after the sale proceeds. Some states limit or prohibit deficiency judgments, especially on residential purchase-money mortgages.
- A property worth $200,000 has a $150,000 first mortgage and a $50,000 second mortgage. The second mortgagee forecloses, and the property sells for $60,000. What does the buyer take?
- The property subject to the $150,000 first mortgage. Foreclosure of a junior interest does not affect a senior mortgage.
- In what order are foreclosure sale proceeds distributed?
- Expenses of sale, then the foreclosing mortgage debt, then junior interests in priority, then the mortgagor. Senior interests are not paid from a junior foreclosure.
- What is the effect of failing to join a necessary junior lienor in a foreclosure action?
- The junior lien survives the foreclosure. The omitted lienor retains the right to redeem or foreclose.
- What is a power of sale foreclosure?
- A nonjudicial sale under a power in the mortgage or deed of trust, following statutory notice requirements. It is generally faster and less expensive than judicial foreclosure.
- What is the effect of foreclosure of a junior mortgage on a senior mortgage?
- The buyer takes subject to the senior mortgage. Senior interests are unaffected by foreclosure of a junior interest.
- What is a deed in lieu of foreclosure?
- A voluntary transfer of the property by the mortgagor to the mortgagee to satisfy the debt. The mortgagee takes subject to junior liens.
- What is the equity of redemption?
- The mortgagor's right to pay the debt and redeem the property before the foreclosure sale. The right cannot be waived in the mortgage itself, a rule against clogging the equity.
- Under the acceleration clause in a mortgage, what may the lender do on default?
- Declare the entire debt immediately due. Acceleration allows foreclosure for the full balance.
- What is statutory redemption?
- A right in some states to redeem the property for a period after the foreclosure sale. The redemption price is usually the sale price, not the debt amount.
- What is judicial foreclosure?
- A court-supervised sale of mortgaged property after a judgment establishing default. It is available in every state and required in many.