Finance
A South Carolina borrower who has been in foreclosure proceedings completes a 'short payoff' negotiated with the lender. The remaining deficiency:
AIs automatically forgiven by law
BMay be forgiven by the lender (and may be taxable income to the borrower under IRS rules)✓ Correct
CMust be repaid within 5 years
DIs inherited by the buyer of the property
Explanation
If a lender forgives the deficiency after a short sale or deed in lieu, the forgiven amount may be treated as ordinary income by the IRS (debt forgiveness income), though there are exceptions for insolvent taxpayers and primary residences.
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Key Terms to Know
Short Sale
A sale of real property where the sale proceeds are less than the outstanding mortgage balance, requiring lender approval.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Pre-ApprovalA lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.
DeedA written legal instrument used to transfer ownership of real property from one party (grantor) to another (grantee).
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