Lisa is a Virginia licensee representing a buyer who wants to purchase a property currently in the foreclosure process. The trustee's sale has been advertised but has not yet occurred. Lisa's buyer wants to purchase the property directly from the defaulting owner before the sale. The owner is willing to sell but the sale price would be less than the outstanding loan balance of $320,000. What type of transaction would this be, and what is required for it to proceed?
Correct Answer
B) A short sale; the lender's written approval of the reduced payoff amount is required before closing can occur
When a property sells for less than the outstanding loan balance, it is called a short sale. Because the lender holds a deed of trust securing the property, the lender must approve the reduced payoff amount in writing before the transaction can close. Without lender approval, the deed of trust lien remains on the property and the title cannot be conveyed free and clear. The lender evaluates the short sale and may approve, counter, or deny it. Lisa must ensure her buyer understands that lender approval is a prerequisite and can significantly delay the transaction.
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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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