Please answer the questions and give the explnation 1. A senior mortgage holder
ID: 2794904 • Letter: P
Question
Please answer the questions and give the explnation
1. A senior mortgage holder brings a foreclosure suit which includes all junior
lenders in the suit. If the senior mortgage holder purchases the property for its
mortgage balance at the foreclosure sale, what happens to the claims of the junior
mortgage holders?
(A) The liens of the junior claimants and the amounts due to them are unaffected
(B) The liens of the junior claimants are extinguished, but the amounts owed to
them are unaffected
(C) The liens of the junior claimants and the amounts owed to them are
extinguished
(D) The liens of the junior claimants are unaffected, but the amounts owed to
them are extinguished.
2. The net sale proceeds minus the adjusted tax basis determines which of the
following?
(A) After-tax net present value of the property
(B) Depreciation deductions for the property
(C) Before-tax net present value of the property
(D) Capital gain or loss
Explanation / Answer
1)
When a senior mortgage lender brings a foreclosure suit, the liens of the junior claimants are extinguished , however the debt owed to the junior claimants remains un-affected ie the senior lender can lay claim to the mortgagee's property legally with the junior claimants not having any power to do so. The Junior claimants though have the debt claim on the mortgagee.
Answer B)
2)
Net Sale proceeds minus adjusted tax basis will be either a capital gain or loss.
So Answer is D)