A Massachusetts homeowner has a first mortgage of $250,000 and a home equity line of credit (HELOC) of $40,000 secured by the same property. The first mortgage lender forecloses by power of sale. At the foreclosure sale, the property sells for $270,000. The costs of the foreclosure sale are $10,000. Which of the following correctly describes the outcome for the HELOC lender?
Correct Answer
B) The HELOC lender receives $10,000 from the sale proceeds after the first mortgage and sale costs are paid, and may pursue any remaining deficiency subject to applicable requirements
Option B is correct. The $270,000 sale price first pays $10,000 of sale costs and $250,000 of senior mortgage debt, leaving $10,000. That remaining amount is available to the junior HELOC lender before any surplus reaches the borrower. A properly completed senior foreclosure eliminates the junior lien from title, but the unpaid balance of the HELOC debt may still support a deficiency claim if the applicable statutory requirements are met.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
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