Ann sells to Bob a piece of property, which has a $70,000 mortgage in favor of First Bank. Bob purchases the property subject to the mortgage. The value of the property declines and there is a default on the mortgage. When First Bank forecloses, the
property sells for only $50,000. a. Can First Bank recover the $20,000 balance from Bob? Explain. b. Can First Bank recover the $20,000 from Ann? Explain. c. What rights does Bob have during and after the foreclosure?
a.
No, Bob purchased the property "subject to" the mortgage. This means that the mortgage does not personally obligate Bob to pay the mortgage debt and that his risk of loss is limited to the realty.
?
b.
Yes, Ann remains personally liable for the mortgage debt. When the proceeds are insufficient to satisfy the debt in full, the debtor-mortgagor remains liable for payment of the debt. First Bank will probably obtain a deficiency judgment against Ann and may then proceed to enforce payment of the $20,000 out of other assets that Ann owns.
?
c. Bob has the right to continue to live on the property during the foreclosure process, and in most states also has the right to redeem from the foreclosure within a specified period of time after the sale.
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A cover message should ________
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