Mortgages

Question 1

Foreclosure

Answer 1

Junior Interests
Once a foreclosure of a superior lienholder has occurred and the proceeds are properly distributed, junior lienholders cannot seek satisfaction from the property.

If the foreclosing party fails to include a necessary party in the foreclosure action the junior creditors claim is preserved. The interest will remain on the land.

Senior Interests
Foreclosure cannot affect any interest senior to the mortgage being foreclosed on. A senior interest will remain with the land. The original debtor remains liable on that senior interest but the senior lender can still foreclose on the land.

Question 2

After-acquired Collateral Clause (floating lien)

Answer 2

An after-acquired collateral clause or floating lien allows a lender to include future acquired realty as collateral for loans that are under-collateralized at inception.

Question 3

General Rule of Priority

Answer 3

First in time has highest priority. Purchase-money mortgages get priority in the property it financed.

Question 4

Priority Attack Plan

Answer 4

1. Figure out priority of interests
2. Which interest is being foreclosed?
3. Which interests are superior to the one being foreclosed?
4. Which are inferior?
   a. If a junior interest doesn’t get notice of the foreclosure, its interest survives as a senior interest would
5. Distribute the proceeds in order
   a. Foreclosing party
   b. Junior interests
   c. Mortgagor, if there is a remainder
6. Deficiency suits, if there is not enough to cover all creditors