MBE Fast Fact: Foreclosure and Priorities

Priority of mortgages is tested in a variety of ways on the MBE. An important point to keep in mind in order to keep things straight with this difficult topic is that when a mortgage is foreclosed the buyer at the sale takes title as it existed when the mortgage that is now being foreclosed was placed on the property. What this means, in effect, is that if there is more than one mortgage on the property then foreclosure of one mortgage will only terminate those interests that are junior to the mortgage being foreclosed. In other words, senior interests will not be affected by the foreclosure of a junior interest.

But the complications don't end there. Although the foreclosure of a senior mortgage can terminate mortgages that are junior to that senior mortgage, those junior mortgages are still necessary parties to the foreclosure action. Failure to include those necessary parties will result in the preservation of that junior party's interest despite foreclosure and sale. So, for example, if a senior mortgagee fails to name a junior mortgagee to a foreclosure action by the senior mortgagee, the buyer at the foreclosure and sale will take the property subject to the interests of the junior mortgagee.