Ethan purchases a house for $250,000.He borrows $200,000 from StarCross Bank and gives the bank a mortgage on the house for this amount.StarCross Bank fails to record the mortgage.Ethan then applies to borrow $200,000 from Pentalon Bank.Pentalon Bank reviews the real estate recordings and finds no mortgage recorded against the property,so it lends Ethan $200,000.Pentalon Bank records its mortgage.Later,Ethan defaults on both loans.In this case,which of the following would be true in case of the possible foreclosure on the collateral?

Question

Quizplus · Accepted Answer

Pentalon Bank can foreclose because they recorded the mortgage. The recording statute provides that the first lender to record a mortgage has priority over subsequent lenders. Since StarCross Bank failed to record its mortgage, Pentalon Bank's mortgage takes priority. StarCross Bank cannot foreclose because it did not properly record its mortgage. Option C is not applicable as there is no violation of the recording statute. Option D is incorrect as the collateral does not pass into the public domain in case of foreclosure.

Ethan Purchases a House for $250,000