What happens when a property is foreclosed on?

When a property is foreclosed on, payment distribution is indeed determined by lien priorities. This process involves selling the foreclosed property, typically at an auction, and the proceeds from that sale are used to pay off outstanding debts associated with the property. Liens on the property are ranked in order of priority; the first lien holder is paid first, followed by subsequent lien holders in order of their priority.

For instance, if a property has a mortgage lien and several other liens, the mortgage lender (usually the bank) will be paid first from the proceeds of the sale. If there are enough funds left over after satisfying the first lien, those funds are then distributed to the next lien holders. If there are any funds remaining after all liens have been settled, they can go to the homeowner or borrower, although this is less common.

This hierarchy of claims ensures that the most critical debts are addressed first, allowing the foreclosure process to respect the legal standings of various claimants. Therefore, understanding lien priorities is essential in grasping what occurs during a foreclosure and the distribution of funds thereafter.