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In a scenario where the borrower files for bankruptcy and the property is foreclosed on and sold, what is the order of liability payments when

  1. In a scenario where the borrower files for bankruptcy and the property is foreclosed on and sold, what is the order of liability payments when the amount received from sale of the house (i.e. the collateral) is less than the total debts?

  1. First mortgage is fully paid, then Junior (2nd) mortgage, and finally, the real estate taxes
  2. Real estate taxes are paid first, then the first mortgage and finally the junior mortgage
  3. First mortgage is fully paid, then then real estate taxes and finally the Junior mortgage
  4. The proceeds from sale are allocated in proportion to amounts (first mortgage, second mortgage and real estate taxes
  5. Oldest debts are repaid first

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