The Bank Forecloses on Lisa's Apartment Complex

question 41

Multiple Choice

The bank forecloses on Lisa's apartment complex. The property had been pledged as security on a nonrecourse mortgage, whose principal amount at the date of foreclosure is $750,000. The adjusted basis of the property is $480,000, and the fair market value is $750,000. What is Lisa's recognized gain or loss?

• A) $270,000
• B) ($750,000)
• C) $0
• D) ($480,000)
• E) None of the above

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Definitions:

Undisclosed Principal

A situation in a contractual agreement where an agent acts on behalf of a principal, but the identity of the principal remains unknown to the third party.

Instructions

Directions or orders given for the purpose of guiding actions or procedures.

Agent

A person appointed to act for another, usually in contract matters.

Agency by Estoppel

A form of agency created when a principal's actions lead a third party to believe that an agent has authority, obliging the principal to honor the agent's commitments.