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 states that the first party to record a mortgage has priority over any subsequent parties. Although StarCross Bank made the first loan, they failed to record their mortgage, thereby losing their priority status. Pentalon Bank, who recorded their mortgage and received no notice of the prior mortgage, has priority and can foreclose.

Ethan Purchases a House for $250,000