A Hawaii lender holds a first mortgage on a Honolulu property. The borrower later takes out a second mortgage with a different lender. The borrower then defaults. In Hawaii's judicial foreclosure process, which of the following correctly describes the priority and effect on the second mortgage lender if the first mortgage lender forecloses?
Correct Answer
B) The first mortgage lender's judicial foreclosure extinguishes junior liens, including the second mortgage, with the second mortgage lender entitled only to any surplus sale proceeds after the first mortgage debt is satisfied
In Hawaii's judicial foreclosure process, a properly conducted foreclosure by a senior lienholder (first mortgage) extinguishes junior liens, including second mortgages. The second mortgage lender is entitled to receive any surplus proceeds remaining after the first mortgage debt, foreclosure costs, and fees are fully satisfied. If the sale proceeds are insufficient to cover the first mortgage, the second mortgage lender receives nothing from the foreclosure sale (though they may pursue a deficiency action against the borrower separately). This is consistent with the 'first in time, first in right' priority principle.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A conventional loan is a mortgage that is not insured or guaranteed by a government agency such as the FHA, VA, or USDA. It is originated and funded by private lenders and may be conforming or non-conforming.
The debt-to-income ratio (DTI) compares a borrower's monthly debt obligations to their gross monthly income. It is used by lenders to determine how much mortgage a borrower can afford.
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
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