Patricia holds a first mortgage on a Somerset County property recorded in 2018. In 2020, the property owner takes out a second mortgage with Lender B, which is also recorded. In 2023, the property owner takes out a third mortgage with Lender C, which is recorded immediately. The property owner defaults and the property is sold at a sheriff's sale for $400,000. The first mortgage balance is $350,000, the second mortgage balance is $80,000, and the third mortgage balance is $40,000. Which lender receives payment first from the sheriff's sale proceeds?
Correct Answer
A) Patricia (first mortgage holder), because the first recorded mortgage has priority over all subsequent liens
Under New Jersey's recording act and the principle of lien priority, mortgages are paid in the order they were recorded — 'first in time, first in right.' Patricia's first mortgage was recorded in 2018, giving it priority over all subsequently recorded liens. In a New Jersey judicial foreclosure and sheriff's sale, proceeds are distributed in order of lien priority: Patricia's first mortgage ($350,000) is paid first, then Lender B's second mortgage ($80,000) to the extent funds remain, and finally Lender C's third mortgage if any funds are left. Here, only $50,000 remains after paying Patricia, so Lender B receives $50,000 and Lender C receives nothing.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A life estate is a freehold estate that grants ownership rights for the duration of someone's life.
Real property is immovable land and anything permanently attached to it, while personal property (also called chattels) is movable.
Tenancy by the entirety is a form of co-ownership available only to married couples that includes the right of survivorship and protection from individual creditors. Neither spouse can unilaterally sell or encumber the property.
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