A Massachusetts lender forecloses on a property by power of sale. The outstanding mortgage balance is $480,000. The foreclosure sale generates proceeds of $440,000. Foreclosure costs total $16,000. The lender subsequently files a deficiency action in court. Assuming the court finds the sale was conducted in a commercially reasonable manner, what is the maximum deficiency judgment the lender may seek against the former borrower?
Correct Answer
B) $56,000
Step 1: Calculate total amounts owed to the lender: Mortgage balance $480,000 + Foreclosure costs $16,000 = $496,000. Step 2: Calculate deficiency: $496,000 (total owed) - $440,000 (sale proceeds) = $56,000. The deficiency is the difference between the total amount owed (principal plus allowable costs) and the sale proceeds. The lender may seek a deficiency judgment for $56,000.
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Related Topics & Key Terms
Key Terms:
Related Concepts
An FHA loan is a mortgage insured by the Federal Housing Administration that allows lower down payments and credit scores than conventional loans. It is designed to help first-time homebuyers and borrowers with limited resources.
A fixed-rate mortgage has an interest rate that remains constant for the entire term of the loan, resulting in equal monthly principal and interest payments throughout the life of the mortgage.
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It allows the lender to sell the property to recover the outstanding debt.
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