A Maryland property is sold at a trustee's foreclosure sale for $240,000. The outstanding loan balance is $195,000, and foreclosure costs and fees total $12,000. A second mortgage lender holds a recorded junior lien of $45,000. After satisfying the senior lender and foreclosure costs, how much will the second mortgage lender receive from the sale proceeds?
Correct Answer
B) $33,000, the remaining surplus after senior lien and costs
Step 1 — Calculate total senior claims: Senior loan balance ($195,000) + Foreclosure costs ($12,000) = $207,000. Step 2 — Calculate surplus proceeds: Sale price ($240,000) − Senior claims ($207,000) = $33,000 surplus. Step 3 — Apply surplus to junior lienholder: The $33,000 surplus is distributed to the second mortgage lender, who is next in priority. Since $33,000 is less than the full $45,000 junior lien, the second mortgage lender receives $33,000 — the full surplus — and the remaining $12,000 deficiency on the junior lien becomes an unsecured claim against the borrower. The second mortgage lender receives $33,000.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
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.
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