Lender ABC Bank holds a first trust deed on a property in Orem, Utah. XYZ Finance holds a second trust deed on the same property. The borrower defaults, and ABC Bank initiates a trustee's sale. The property sells at auction for $280,000. ABC Bank's outstanding balance is $260,000. XYZ Finance's outstanding balance is $45,000. How are the sale proceeds distributed, and what is XYZ Finance's likely outcome?
Correct Answer
C) ABC Bank receives $260,000, XYZ Finance receives $20,000, but XYZ Finance may still pursue the borrower for the $25,000 deficiency
In Utah, trust deed lien priority follows the 'first in time, first in right' principle. When a senior lienholder (ABC Bank) conducts a trustee's sale, proceeds are distributed in lien priority order: ABC Bank's first trust deed ($260,000) is paid first, leaving $20,000 for XYZ Finance. XYZ Finance's second trust deed lien is extinguished by the trustee's sale (junior liens are wiped out). However, XYZ Finance still has a personal claim against the borrower for the $25,000 deficiency ($45,000 balance − $20,000 received) and may pursue a deficiency judgment under Utah Code Ann. § 57-1-32, subject to the fair market value limitation and the three-month filing deadline.
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Related Topics & Key Terms
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Related Concepts
In the context of foreclosure, a deed transfers ownership of the foreclosed property to the new owner, typically the buyer at a foreclosure sale.
Discount points are upfront fees paid to a lender at closing to reduce (buy down) the interest rate on a mortgage loan. One point equals 1% of the loan amount and typically reduces the rate by approximately 0.25%.
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
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