Default On Divided Property
When a tract of land is purchased with a mortgage and then split up and sold, the "inverse order of alienation rule" applies to decide parties liable for the unpaid debt.
When a mortgaged tract of land is split up and sold, upon default, the mortgagee first forecloses on lands still owned by the mortgagor and proceeds against other owners in an 'inverse order' in which they were sold. For example, Alice acquires a 3-acre (12,000 m2) lot by mortgage then splits up the lot into three 1-acre (4,000 m2) lots (X, Y, and Z), and sells lot Y to Bob, and then lot Z to Charlie, retaining lot X for herself. Upon default, the mortgagee proceeds against lot X first, the mortgagor. If foreclosure or repossession of lot X does not fully satisfy the debt, the mortgagee proceeds against lot Y (Bob), then lot Z (Charlie). The rationale is that the first purchaser should have more equity and subsequent purchasers receive a diluted share.
Read more about this topic: Mortgage Law
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