Mortgages, Financing, and Foreclosure
The Mortgages, Financing, and Foreclosure domain tests how lenders secure repayment, how liens are prioritized, and what happens on default. Expect security-instrument, priority, foreclosure, redemption, and deficiency issues.
Security instruments and priority
A mortgage is a two-party lien; a deed of trust adds a trustee and permits nonjudicial sale. In a lien-theory state the lender holds a lien; in a title-theory state legal title passes to the lender until repayment. Priority generally follows recording order, subject to purchase-money and subordination rules. A purchase-money mortgage usually beats liens against the buyer that arose before the buyer acquired title, but not preexisting liens on the land unless subordinated. Future advances and modifications can affect priority.
Default and foreclosure
Default triggers acceleration. Judicial foreclosure uses court supervision; nonjudicial foreclosure follows statutory notice and power-of-sale procedures. The borrower may redeem before sale; some states allow statutory redemption afterward. A senior foreclosure extinguishes junior liens but leaves senior liens in place. Proceeds pay costs, the foreclosing debt, junior liens in order, then the borrower. A deficiency judgment requires a shortfall and is barred or limited by some anti-deficiency statutes. Deeds in lieu and short sales avoid foreclosure but require lienholder cooperation.
Worked example
First mortgage $300,000; second mortgage $50,000. First forecloses and sells for $280,000. After costs, First receives $280,000 and may seek a $20,000 deficiency if allowed. Second is wiped out. If the sale produced $360,000, First is paid $300,000, Second up to $50,000, and the remainder goes to the borrower.
Traps
Recording order controls unless a statute or subordination agreement changes it. A foreclosure buyer takes subject to senior liens. “Subject to” and “assumption” create different liability. Anti-deficiency protection is state-specific.