Avery Ward owes $425,000 on a home that can sell for only $405,000. The lender approves a sale at the lower amount and releases its lien so title can transfer to the buyer. What is this arrangement called?
Correct Answer
D) Short sale
A short sale is a sale for less than the balance owed, carried out with the lienholder's consent. The lender agrees to release its lien for less than a full payoff so title can pass to a third-party buyer, which is exactly what happens when a $425,000 debt is settled out of a $405,000 sale price. Whether the lender forgives the $20,000 shortfall or pursues it separately depends on the agreement and on state law.
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Related Topics & Key Terms
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Related Concepts
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
A trustee sale is a type of foreclosure where a trustee, appointed under a deed of trust, sells the property at auction to satisfy the debt.
Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Usury laws protect borrowers from excessive interest charges on loans.
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