Grace defaulted on her first mortgage in Mercer County, New Jersey. She also has a second mortgage on the same property. The first mortgage lender obtained a judgment of foreclosure and conducted a sheriff's sale. The property sold for exactly the amount of the first mortgage judgment. Which statement correctly describes the effect on the second mortgage?
Correct Answer
B) The second mortgage is extinguished by the sheriff's sale because it was junior to the foreclosing first mortgage
In New Jersey, when a senior mortgage lender (first mortgage) forecloses and names the junior lienholder (second mortgage) as a defendant in the foreclosure action, the sheriff's sale extinguishes the junior lien. The purchaser at the sheriff's sale takes title free and clear of the second mortgage. The second mortgage lender's security interest in the property is eliminated. However, the second mortgage lender may still have a personal claim against Grace for the unpaid debt — it simply loses its secured status against the property.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.
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