A property in Colorado is sold at a Public Trustee foreclosure auction for $325,000. The outstanding first mortgage balance is $298,000. There is a recorded second mortgage with a balance of $42,000. After paying off the first mortgage and all Public Trustee sale costs of $3,500, how much will the second mortgage holder receive from the sale proceeds?
Correct Answer
A) $23,500
Step 1: Calculate net proceeds after first mortgage and costs. Sale price: $325,000. Subtract first mortgage: $325,000 - $298,000 = $27,000. Subtract Public Trustee costs: $27,000 - $3,500 = $23,500. Step 2: The second mortgage balance is $42,000, but only $23,500 remains. The second mortgage holder receives $23,500 — the full remaining proceeds — but does not recover the full $42,000 balance. The remaining $18,500 deficiency ($42,000 - $23,500) may be subject to a deficiency judgment action.
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Related Topics & Key Terms
Key Terms:
Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
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