16. Foreclosure

Question 1

What must Creditor do after Lender default?

Answer 1

Foreclose by proper judicial proceedings

Sell land at foreclosure

Question 2

What is the prioritisation for sale proceeds?

Answer 2

Priority depends on first to record interest

If sale proceeds > Debt

1) Costs of sale
2) Mortgage
3) Junior interests (NOT Senior interests - They continue to encumber property)
4) Debtor (surplus)

If sale proceeds < Debt
Creditor/Junior interest can bring deficiency action vs Debtor

Question 3

What is the prioritisation for termination of interests (which Creditors are Purchaser NOT subject to)?

Answer 3

Junior interests (most junior to less junior)

UNLESS Junior interest NOT included in foreclosure action!!!

Question 4

How can land be redeemed?

Answer 4

Redemption in equity

• Redeem BEFORE foreclosure
• If Acceleration clause exists => Pay full balance
• If NO acceleration clause exists => Pay missed payments

Statutory redemption

• Redeem AFTER foreclosure (6 months - 1 year)
• Pay foreclosure price

Question 5

What is the effect of redemption of land?

Answer 5

Debtor is restored to title

Question 6

What defences are available against foreclosure?

Answer 6

Dodd-Frank Act
- Creditor failed to determine Debtor’s ability to repay before foreclosure

Consumer Protection
- Creditor failed to consider Debtor’s request for loan modification in case of default