A Maryland property was sold at a trustee's foreclosure sale for $180,000. The outstanding senior loan balance was $160,000, and foreclosure costs were $8,000. After the sale was ratified, the lender filed for a deficiency judgment. The court determined the fair market value of the property at the time of sale was $195,000. Under Maryland's anti-deficiency principles applied to the deficiency calculation, what amount can the lender claim as a deficiency?
Correct Answer
D) $0, because the fair market value exceeded the outstanding debt plus costs
In Maryland, when a lender seeks a deficiency judgment after a foreclosure sale, the court may use the fair market value of the property (rather than the actual sale price) as the credit against the debt if the fair market value is higher than the sale price. This protects borrowers from deficiency judgments when a property sells below market value at a distressed foreclosure auction. Here: Total debt = $160,000 (loan) + $8,000 (costs) = $168,000. Fair market value = $195,000. Since the fair market value ($195,000) exceeds the total debt ($168,000), the lender has no deficiency — the borrower is credited with the higher fair market value, which more than satisfies the debt. The lender cannot claim a deficiency even though the actual sale price ($180,000) also exceeded the total debt. The answer is $0 because both the sale price and the FMV exceed the total debt.
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Related Topics & Key Terms
Key Terms:
Related Concepts
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.
The loan-to-value ratio (LTV) is the percentage of a property's appraised value or purchase price (whichever is lower) that is being financed through a mortgage. LTV = Loan Amount / Property Value.
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