Zalinski was the owner in fee simple of a house and

lot. She mortgaged the property to the Home Bank for

$500,000. Then she sold the house and lot to Steele for

$750,000, of which $500,000 represented the mortgage

Steele assumed and the remaining $250,000 was payment

to Zalinski for her equity.

Shortly after that, Steele borrowed $100,000 from

Gray, giving Gray a $100,000 second mortgage on

the property as security for the loan. Steele then

sold the property to Allen for $800,000, of which

$500,000 was the first mortgage to the Home Bank,

$100,000 the mortgage to Gray, and $200,000 cash

payment for Steeles equity.

The house caught fire and burned to the ground a

few days after Allen acquired the property. The house

was insured for $450,000. 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.