A Connecticut homeowner has a first mortgage of $200,000 and a home equity line of credit (HELOC) of $50,000 on a property valued at $230,000. The homeowner defaults on the first mortgage. The first mortgage lender initiates a strict foreclosure action. What is the MOST LIKELY outcome for the HELOC lender if the homeowner does not redeem the property by the applicable law day?
Correct Answer
D) The HELOC lender's lien is extinguished if it does not redeem the property by its own law day set by the court.
In Connecticut's strict foreclosure process, the court sets sequential law days for all lienholders. As a junior lienholder, the HELOC lender receives a law day after the first mortgage lender's law day. The HELOC lender has the opportunity to redeem the property by paying off the entire first mortgage debt ($200,000) plus costs to protect its $50,000 interest. If the HELOC lender chooses not to redeem by its law day, its lien is extinguished — it receives no payment and loses its security interest. Given that the property is worth only $230,000 against a first mortgage of $200,000, the HELOC lender would need to pay $200,000+ to protect a $50,000 position, making redemption economically unattractive.
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Related Topics & Key Terms
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