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Multistate Bar (MBE) OPE 1 Practice Exam

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A businessman owns a hotel subject to a mortgage securing a debt he owes to a bank and also owns a nearby garage financed by a loan secured by a mortgage on the garage. A statute provides that any properly filed judgment is a lien on real property owned by the judgment debtor for 10 years. A foreclosure sale of the hotel mortgage occurs, and later a foreclosure sale on the garage mortgage occurs. Which statement about the distribution of proceeds from the garage foreclosure is correct?
Correct Answer:
The proceeds go to the hotel bank to satisfy its judgment.
Explanation:
The main idea is how liens on real property are prioritized when foreclosure proceeds are distributed. A properly filed judgment creates a lien on all real property owned by the judgment debtor, so it attaches to any property, including the garage, not just the hotel. When the garage mortgage is foreclosed, the sale proceeds are applied first to liens on the garage property in order of priority determined by their filing/recording dates. If the judgment lien was filed before the garage mortgage, it has priority over that mortgage on the garage property, so the funds from the garage foreclosure would be applied to satisfy the hotel bank’s judgment first. Only after that would any remaining proceeds go to the garage lender. Hence, the proceeds go to the hotel bank to satisfy its judgment.

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