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Owner borrowed $300,000 from Lender One and signed a promissory note secured by a mortgage on Owner's farm. Lender One did not record the mortgage for six months. Three months after the Lender One loan, Owner borrowed $200,000 from Bank and signed a second mortgage on the same farm. Bank searched the land records, found no mortgage, had no actual notice of Lender One's mortgage, and immediately recorded. The jurisdiction has a race-notice recording act.
Owner defaulted on both loans. The farm is worth $420,000. Lender One claims priority because its mortgage was signed first. Bank claims priority because it recorded first without notice. Owner argues that neither lender may take possession before foreclosure because the jurisdiction follows lien theory.
Discuss the rights of Owner, Lender One, and Bank. Address lien theory, priority under the recording act, application of foreclosure sale proceeds, and any deficiency or surplus issues.