In Ohio, a borrower facing foreclosure negotiates a short sale with their lender. The property is worth $200,000 but the mortgage balance is $250,000. The lender agrees to accept $200,000 as full satisfaction of the debt. Under this arrangement, the borrower:
Correct Answer
A) Is relieved of the $50,000 deficiency if the lender agrees to waive it, but may face tax implications on the forgiven debt
In a short sale, if the lender agrees to accept the sale proceeds as full satisfaction and waives the deficiency, the borrower is relieved of the remaining balance. However, the forgiven debt may be treated as taxable income under IRS rules, creating a potential tax liability for the borrower.
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Key Terms:
Related Concepts
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.
A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
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