A Connecticut homeowner, Linda, has a first mortgage with Bank A for $200,000 and a second mortgage (junior lien) with Bank B for $50,000. Linda defaults, and Bank A initiates a strict foreclosure action. The court sets a law day of May 1 for Linda and a law day of May 8 for Bank B. Neither Linda nor Bank B redeems by their respective law days. What is the outcome regarding Bank B's second mortgage lien?
Correct Answer
A) Bank B's lien is extinguished, and Bank B loses its secured interest in the property.
In Connecticut's strict foreclosure, when a junior lienholder (Bank B) fails to redeem the property by its law day, its lien is extinguished. Bank B had the opportunity to protect its interest by paying off Bank A's senior debt and redeeming the property, but it chose not to do so. As a result, Bank A takes title free and clear of Bank B's junior lien. Bank B may still pursue a personal deficiency judgment against Linda but loses its secured interest in the property.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
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