During a Maryland foreclosure proceeding, a junior lienholder (second mortgage lender) is concerned about protecting its interest. Which of the following correctly describes how a junior lienholder's interest is affected by a properly conducted foreclosure of the senior lien in Maryland?
Correct Answer
A) The junior lien is extinguished by the foreclosure sale, but the junior lienholder may share in surplus proceeds
When a senior lienholder properly forecloses in Maryland, junior liens (such as second mortgages or junior deeds of trust) that were recorded after the senior lien are extinguished by the foreclosure sale. The property passes to the purchaser free and clear of those junior liens. However, junior lienholders have a right to any surplus sale proceeds remaining after the senior lien and foreclosure costs are satisfied. The priority of distribution follows the lien priority order established by recording dates.
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Related Topics & Key Terms
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Related Concepts
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
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