A Kentucky real estate licensee is working with a seller whose property is subject to a first mortgage and a second mortgage. The property goes to a sheriff's sale after the first mortgage lender forecloses. The sale proceeds are $195,000. The first mortgage balance is $170,000, and the court costs are $5,000. The second mortgage balance is $40,000. Which of the following correctly describes how the sale proceeds will be distributed?
Correct Answer
C) Court costs are paid first ($5,000), then the first mortgage lender receives $170,000, leaving $20,000 for the second mortgage lender
In Kentucky judicial foreclosure, proceeds from the sheriff's sale are distributed in order of lien priority. Court costs and fees of the foreclosure action are paid first. Then senior lienholders are paid in order of priority. Calculation: $195,000 total proceeds - $5,000 court costs = $190,000 remaining. First mortgage lender (senior lienholder) receives $170,000 from the $190,000. Remaining: $190,000 - $170,000 = $20,000 goes to the second mortgage lender. The second mortgage lender receives $20,000, leaving a deficiency of $20,000 ($40,000 balance - $20,000 received) for which they may seek a deficiency judgment.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
A comparison of the major mortgage loan types—conventional, FHA, VA, and USDA—covering their eligibility requirements, down payment amounts, mortgage insurance rules, and best use cases.
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