A property in Manhattan is being foreclosed, and there are multiple liens on the property: a first mortgage of $800,000, a second mortgage of $200,000, property taxes of $15,000, and a mechanic's lien of $25,000. The foreclosure sale brings $750,000. After paying sale costs of $10,000, how will the remaining $740,000 be distributed under New York's lien priority rules?
Correct Answer
B) Property taxes first, then first mortgage, with no payment to junior lienholders
Under New York law, property taxes have super-priority and are paid first ($15,000), then the first mortgage receives $725,000 (leaving $75,000 unpaid on the first mortgage). Since the first mortgage is not fully satisfied, junior lienholders (second mortgage and mechanic's lien) receive nothing. Liens are paid in strict priority order, not proportionally.
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