Fixed Income Q64

64Frank Smith obtains a recourse mortgage loan for $300,000. One year later, when the outstanding balance of the mortgage is $290,000, Frank cannot make his mortgage payments and defaults on the loan. The lender forecloses the loan and sells the house for $250,000. What amount is the lender entitled to claim from Frank?

Option : B
Explanation : In a recourse loan, the lender is entitled to claim the shortfall between the mortgage balance outstanding and the proceeds received from the sale of the property. i.e. 290,000 – 250,000 = 40,000.

Forgot your password?

I agree with the Terms.