Zalinski was the owner in fee simple of a house and

lot. She mortgaged the property to the Home Bank

for $50,000. Then she sold the house and lot to Steele

for $75,000, of which $50,000 represented the mortgage Steele assumed and the remaining $25,000 was

payment to Zalinski for her equity.

Shortly after that, Steele borrowed $10,000 from

Gray, giving Gray a $10,000 second mortgage on the

property as security for the loan. Steele then sold

the property to Allen for $80,000, of which $50,000

was the first mortgage to the Home Bank, $10,000

the mortgage to Gray, and $20,000 cash payment for

Steele's equity.

The house caught fire and burned to the ground a

few days after Allen acquired the property. The house

was insured for $45,000. The policy named Allen

as the insured, the Home Bank as first mortgagee,

and Gray as second mortgagee. After the fire, Allen

abandoned the property and left the country.

Advise the Home Bank and Gray as to their legal

rights. Speculate as to how the parties might proceed

toward protecting their respective interests