Rashid purchased real estate known as Parcel A, subject to a preexisting mortgage, in favor of Local National Bank. Leila purchased real estate known as Parcel B, assuming a preexisting mortgage on it in favor of Local National Bank. After each purchase took place, there were defaults on the debts that gave rise to the mortgages. Although Local National Bank instituted and completed foreclosure proceedings with regard to each of the two mortgages, it did not yield enough funds to pay off the debt in full. Therefore, Local National Bank made demands on Rashid and Leila for payment of the deficiency owed on Parcel A and on Parcel B, respectively. Explain if Local National Bank is entitled to receive the deficiencies it seeks from Rashid and Leila.

Question

What will be an ideal response?

Answer 1

Local National Bank is not entitled to collect the deficiency it seeks from Rashid, but it is entitled to collect the deficiency it seeks from Leila. When one purchases property subject to a mortgage, the purchaser is not personally liable for any deficiency remaining after a foreclosure sale. On the other hand, if the purchaser of property assumes a preexisting mortgage, he or she becomes personally liable for the debt and any deficiency remaining after a foreclosure sale.