A cooperative building in Brooklyn has both a first mortgage and a second mortgage on the underlying building totaling $15 million. Individual shareholders have share loans totaling $8 million. If the cooperative defaults on its underlying mortgages, what happens to the individual share loans?
Correct Answer
A) The building mortgages take priority, potentially wiping out the value securing individual share loans
Building mortgages take priority over individual share loans because they are secured by the real property (building) while share loans are secured by personal property (shares and leases). If the building is foreclosed, the shares become worthless, potentially eliminating the security for individual share loans.
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