A property in Layton, Utah sold at a trustee's sale for $175,000. The outstanding loan balance was $200,000. The fair market value of the property at the time of the sale was appraised at $195,000. The lender files a deficiency judgment action against the borrower. Under Utah Code Ann. § 57-1-32, what is the maximum deficiency judgment the lender can obtain?
Correct Answer
A) $5,000 (the difference between fair market value of $195,000 and the loan balance of $200,000)
Under Utah Code Ann. § 57-1-32, the deficiency judgment is limited to the lesser of: (1) the difference between the total debt and the actual sale price, or (2) the difference between the total debt and the fair market value of the property at the time of the sale. Calculation: (1) Debt − Auction price = $200,000 − $175,000 = $25,000; (2) Debt − Fair market value = $200,000 − $195,000 = $5,000. The lesser of these two amounts is $5,000. This fair market value limitation protects borrowers from lenders who allow properties to sell at artificially low auction prices and then seek large deficiency judgments. The maximum deficiency judgment is $5,000.
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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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