Question

A homeowner's property has been foreclosed upon by the bank and sold at public auction. The homeowner owed $50,000 on the mortgage but the property sold for only $40,000. To collect the $10,000, the lender could do which of the following?

A) Pursue the homeowner for the remaining balance
B) Absorb the loss as a cost of business
C) Seek reimbursement from the government
D) Forfeit the remaining amount as uncollectible debt

Answer 1

A lender can pursue the homeowner for the remaining balance, absorb the loss as a cost of business, or forfeit the amount as uncollectible debt. Seeking reimbursement from the government is generally not applicable unless specific programs are in place.

Step-by-step explanation:

When a homeowner's property is foreclosed upon and sold at a public auction for less than the amount owed on the mortgage, the lender has several options to address the deficit. The first option is to pursue the homeowner for the remaining balance, also known as a deficiency judgment. This would require the homeowner to pay the difference between the sale price and the mortgage balance. The second option is for the lender to absorb the loss as a cost of business, which means the lender accepts the loss and does not pursue the homeowner for the remaining amount. The third option, seeking reimbursement from the government, is generally not applicable unless specific government programs are in place that protect lenders from such losses. Lastly, the lender could choose to forfeit the remaining amount as uncollectible debt, essentially writing off the loss.