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a. Drake v. Hosley
i. Reasoning: The court followed the reasoning in Ellsworth Dobbs, Inc. v. Johnson
that a real estate broker does not normally earn a commission unless the contract
of sale is performed. This is because it is understood that the money for the
payment of a commission will normally come from the sale proceeds. However,
the Dobbs court specifically held that the rule only applies in the absence of
default by the seller. The court further rejected Drake's argument that the call to
Hosley was a modification of the sales contract because Hosley was not
employed by the buyers and had no power to act as their agent in a contract
modification.
ii. Notes: 1. Under the Dobbs rule, the broker can recover from a breaching seller,
but there is no provision to recover from a breaching buyer unless that condition
is incorporated into the buyer's contract of sale. 2. An broker who contracts with
the seller is the primary broker, and if another broker finds a buyer, then the two
brokers split the seller's commission 50-50. However, since the broker who found
the buyer has some fiduciary responsibility to both parties, it is a conflict of
interest. 6. True "buyer's brokers" are faced with a problem in compensation. If
the buyer won't agree to pay them a commission directly, then they may be
screwed because the seller's broker has no duty to share his commission because
the buyer's broker is not acting as his sub-agent.
  
 



 


a. Johnson v. Curtis
i. It can be argued that the lack of certain terms in the original written agreement
may render the contract unenforceable such as interest rate
ii. Why is there an enforceable modification? Court finds there was a meeting of the
minds that the contract price was to be reduced as a µmeeting of the minds¶
requires only objective manifestations of mutual assent for the formation of a
contract
iii. Part-Performance Doctrine takes the contract out of the statute of frauds - the
Johnstons¶ acts of taking possession of the property and paying a portion of the
purchase price are sufficient to take the oral modification to the contract out of
the statute of frauds
iv. Damages: the measure of damages is the difference between the contract price of
the land and its market value at the time of the breach, leass the portion of the
purchase price already paid
u. Rosenfeld v. Zerneck
i. plaintiff and defendant had discussed and had exchanged e-mails negotiating for
the sale of defendant¶s home to plaintiff. Plaintiff interpreted the sum and
substance of these messages, when taken together, as an agreement of all of the
essential terms of the bargain and viewed this as a contract. Defendant disagreed
and moved for summary judgment dismissing the complaint that sought specific
performance of this alleged contract. Defendant argued that the e-mail messages
were merely preliminary and were never intended to be the final agreement
which, he argued, required further discussion. Accordingly, defendant claimed
that this e-mail did not satisfy the Statute of Frauds. During their dealings, after
viewing the property, plaintiffs informed the defendant that they "loved the
house" and offered a $ 3,500,000 cash deal.



 c

 
 
 

ii. HOLDING: The Court went on to find that the correspondence between the
parties did not sufficiently recite all of the essential terms of the agreement and
on that basis ultimately dismissed plaintiffAs claim.
iii. The ability for the court to determine an available remedy or whether there has
been a breach = basic elements needed in contract formation
  

 

 

i. Three most often mentioned acts of part performance which allow for
enforcement of a contract lacking sufficient writing are:
1. Payment of part or all of the purchase price
2. Going into possession of the realty
3. Making substantial improvements
ii. Most courts will require more than one of those acts be performed if they are to
enforce the contract i.e. taking the contract out of the State of Frauds and
permitting enforcement in equity despite the absence of suitable writing
iii. A contract is still, however, required
iv. Theories of Part Performance:
1. Reliance ± as articulated in §129 of the Restatement ³the party seeking
enforcement has so changed his position that injustice can be avoided
only by specific enforcement´
ñ c

c

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ë Remedies for breaches of RE contracts are damages and specific performance
ë Damages: usually means the vendor will keep the property or will sell it
ë SP: predicated on his conveying it to the contract purchaser who will pay the full
agreed price
ë Loss of Bargain Damages: measured as the diff b/n the contract price and the market
value of the land on the date of breach
a. Donovan v. Bachstadt
u. Schwinder v. Austin Bank of Chicago
 
ñ
!

ë Doctrine holds that equitable title passes to the purchaser as soon as an enforceable
contract to sell land is formed eventhough legal title will remain with the seller until
the closing and deliver of a deed
ë 2 Types of Contracts:
d Long Term Installment Sale Contract: purchaser takes possession of the RE
immediately upon the execution of the contract, pays for it for a number of
years and receives a deed only when the last payment is made
d Short Term Earnest Money Contract: short executory period, no installment
payments but rather a single payment of the full price on the µclosing date¶
and usually no possession by the buyer until the closing has ocurred
a. Fulton v. Duro
 "
 #
 


c
i. Adopted by 11 states ± changes the impact of equitable conversion on the risk of
certain types of losses
 $
 
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ë 3 most common forms of financing:
d A loan from a third party lender such as a bank to the buyer
d The µtaking over¶ by the buyer of the payments on an existing loan which the
seller or some former owner obtained from a third party lender; and
d Financing provided by the seller himself in the form of a deferral or receipt
of some portion of the purchase price



 c

 
 
 

ë The obligation to pay is represented by a Promissory Note
ë A mortgage deed or deed of trust is then issued to secure the collateral RE
a. Schrader v. Benton
 ñ


ñ


ë The provisions of a contract can be covenants or conditions or both:
d Covenant is a promise ± obligation to perform whereby failure to do so may
be subject to a suit for breach, with such remedies as damages, specific
performance and rescission potentially available to the non-breaching party
d Condition is merely a statement that a party¶s obligation to perform some
covenant is dependent upon the happening of some event or occurrence
d There can also be options
a. Baruer v. Jacous

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ë Deeds transfer legal title
ë Statute of Frauds
ë Elements of a Deed (pg. 139)

 $
 
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u. Chase Federal Savings and Loan Association v. Screiuer
 




  

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 ,
ë Delivery is mandatory and is what makes the deed operative ± and undelivered deed
is deemed entirely void
ë Delivery requires the coincident presence of two factors: an intent by the grantor to
pass title immediately and some act on the grantor¶s part to evidence that intent such
as the manual handing over of the deed to the grantee
a. Martinez v. Martinez
u. Wiggill v. Cheney
 -


 .
+
ë Silence as to defects by the seller can be actionable if the matter not disclosed is
µmaterial¶, is not obvious in a routine inspection and seller is aware of it eventhough
the seller does nothing to mislead the buyer
ë Even stronger case for liability exists where the seller is shown to have taken active
steps to hide the defects
a. Speigh v. Walters Development
i. Suit for breach of implied warranty of workmanlike construction against the
builder of the home
 ñ !




ë Title assurance ± the set of mechanisms which buyers of land use to learn in advance
whether their sellers have and can convey the quality of title they claim and obtain
recovery if the title turns out to not be as represented
ë Deed Covenant: whereby the deed itself gives the grantee rights against the grantor if
the title is not as promised ± lease effective
ë Additional mechanisms are the recording system, the title registration system and
title insurance



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ë 6 types of title covenants in deeds 3 present and 3 future (b/c of the application of the
statute of limitations upon conveyance you need the future ones in case the defect is
only discovered after conveyance):
d 1. Covenant of Seisin
d Right to Convey
d Against Encumbrances
d Warranty and quiet enjoyment
d Further assurances
a. Brown v. Louer

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    2 ñ






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a. Notes
i. Clogging Doctrine: a mortgagor¶s equity of redemption cannot be clogged and he
cannot cut off or surrender his right to redeem
ii. An agreement allowing the mortgagee to keep any part of the mortgaged
property, redemption being limited to the balance therefore fails. Nor is the
mortgagee allowed to enter into an option or contract for the purchase of the
mortgaged property ± this is strongly adhered to by the courts
iii. The important thing to keep in mind is whether they intended the deed to stand as
security for a debt. Where the parties cast their transaction in the form of an
absolute conveyance instead of a mortgage, they do not intend to create the
relationship of mortgagor and mortgagee but the right to redeem remains if it was
intended as security
iv. Absolute Deed: parol evidence can be used to establish the deed was used not as
a sale transaction but rather intended as security for the loan
v. Conditional Sale: sold subject to an option which upon compliance allows
grantor to redeem the RE
u. Perry v. Queen
i. Usually described as a conditional sale transaction ± there was not only a deed to
the grantee but a second written document that normally purports to convfer on
the grantor the obligation or option to purchase the real estate
ii. It is clear from the second writing the grantor has the right to reacquire the RE by
virtue of complying with the terms of the option
c. Downs v. Ziegler
  $




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ë A substitute to mortgage or deed of trust devices ± the vendee normally goes into
possession and agrees to make monthly installment payments of principal and interest
until the principal balance is paid off. The vendor retains legal title until the final
payment is made at which time he has a duty to execute a deed to the land
ë Default by vendee may result in the following remedies (and may chose only one):
d Suit for the installments which are due w. interest
d Specific performance
d Damages for the breach: measured by the difference b/n the contract balance
and the FMV of the property as of the date of the breach
d Foreclosure on vendee¶s rights
d Muiet title or rescission



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ë Forfeiture Clause: included in all ILC whereby the vendor has the option to declare
the contract terminated, retake possession and retain all payments under the contract
as liquidated damages
a. Russell v. Richards
u. Petersen v. Hartell
c. Seuastian v. Floyd
d. Summit House Co. v. Gershman
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a. Equitaule Trust Co. v. Imuesi

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ë Title Theory: as legal titleholder the mortgagee has a right to immediate possession
against the mortgage absent any agreement to the contrary
d Limitations on the theory are that the mortgagor is recognized as the owner
of the land and the mortgagee only the legal holder for security purposes
d Also, some statutes and/or standard mortgage instruments give the mortgagor
the right to possession until default
ë Lien Theory: accepted by the majority, the mortgagee acquires only a µlien¶ on the
RE and the mortgagor retians both legal and equitable title and the right to possession
until foreclosure or a deed in lieu of foreclosure
ë Receiverships: b/c of the possible liabilities to a mortgagee in possession arising from
the duty to maintain and preserve the property, some mortgagees instead appoint
receivers in order to tap into the rents and/or benefits of the real estate without
exposing themselves to liability

 c


u. Dover Mouile Estates v. Fiuer Form Products, Inc.
i. Commercial lease setting dealing with the priorities of leases prior to mortgage
ë Varying Priorities by Agreement used to readjust the rights and responsibilities of the
mortgagee and lessee in the commercial lease context:
d Subordination Agreement: the lease and all its rights and privileges of tenant
are unconditionally subjected to and subordinated to the lien of the mortgage
instrument
d Nondisturbance agreement: the mortgagee holding a senior lien agrees that in
the event of a foreclosure the purchaser will permit the lease to continue
d Attornment: tenant agrees that if the interests of the landlord shall be
transferred by reason of foreclosure tenant shall be bound to the purchaser
under all the terms and conditions of the lease with the same force and effect
as if the purchaser were the original landlord.
c. In the Matter of Millette
d. Coleman v. Hoffman
 c! 
ë Judicial appointment of a third party to take possession of the mortgaged property, to
repair or preserve the property and to collect rents
ë Mortgagee avoids someo f the strict accounting responsibilities
ë A receiver can take possession and attempt to reestablish a cash flow from the RE
ë Requirements:



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d There must be shown some distinct equitable ground such as danger of loss,
waste, destruction or serious impairment of the property to warrant the
appointment of a receiver
d Restatement §4.3: mortgagee is entitled to receiver if:
§ The mortgagor is in default under the mortgage
§ The value of the RE is inadequate to satisfy the mortgage; and
§ The mortgagor is committing waste
a. Dart v. Western Savings & Loan
u. Trustco Bank v. Eakin
ñ % &
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+ 
!


 
a. Edwards v. First National Bank of North East
i. E owners of residential property next to a gas station ± they had a deep well put
into their house to accommodate their daycare facility
ii. Bank foreclosing on gas station removed and replaced underground gas tanks
iii. E began smelling gasoline in their water ± they had it tested and it came back
with high levels of gasoline in their water - E sues bank
iv. Action pleads cases of action for negligence, nuisance, trespass and strict liability
v. Bank argues that according to statute it left the premises within the stipulated 180
days and thus should not be responsible.
vi. Court:
1. Reading the applicable subsection of statute so broadly was not the intent
of the legislation and thus cannot be applied, the statute, together with a
different section and the remainder of the text, are instructed to be read
specifically
2. The statute does not therefore preempt these kinds of common law
causes of action such as negligence, nuisance, trespass and strict liability
vii. GENERAL RULE: mortgagees remain liable to adjoining landowners for
environmental contamination on a variety of common law theories

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ë Take Over of Mortgage: title to the land is transferred to the purchaser but the
existing mortgage is not paid off or satisfied instead it remains on the land. The
purchaser is generally given credit toward the purchase price in an amount equal to
the outstanding balance of the loan being taken over and may either pay the
remainder of the price with that or finance all of it by other means such as a second
mortgage. -0
 :
d Assumption: a promise by the purchaser to make the payments of the
mortgage in place and perform the other covenants in the note and mortgage
± the promise need not be written but should be
d Taking subject to
ë Surety Relationship and recourse by Mortgagor:
d Surety exists when upon lack of assumption the real estate becomes liable
notwithstanding its owner, etc.
d Surety Defenses (Pg. 460)
a. Middleton v. Hancock
i. No express µassumption agreement¶ but M argues that H¶s assumption is
expressed in the contract of sake and the deed



 c

 
 
 

ii. Pertinent language of the contract refers only to the fact the purchaser agress to
take over payments on the existing loan« is that equivalent to a promise to pay
them?
iii. Case law shows that the term take over, standing alone, constutites an assumption
but court DISAGREES
u. First Federal Savings & Loan Association v. Arena
 

   % &
&5$

ë Transactions in which one lender sells or assigns the note and mortgage to another
lender are known as secondary sales
ë Secondary Market Transactions generally fall into four categories:
d Outright sale to an investor who will hold the mortgage in its portfolio
d Partial Assignments (participations) sold to multiple investors
d Sale of mortgage-backed pass-through securities
d Sale of multiclass mortgage backed securities
d Collateral or Security transfer of ntoes and mortgages
a. In Re AppOnline.com, Inc.
u. In re Kang Jin Hwang
i. MERS issue
ii. Summary of the rules governing the transfer and enforcement of negotiable notes
c. Perfection of Security Interests in Mortgage Notes and Mortgages
ñ 
&   

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ë Once a mortgage is paid off the mortgagee is required to issue a release of mortgage
to be recorded on the land records
ë A partial release can also be issued in instances of multiple lots whereby one gets
paid off but not the loan as a whole
a. Westmark Commercial Mortgage v. teenform Associates LP
i. Prepayment of a commercial loan
ii. Prepayment premiums are designed to protect a lender against potential losses it
may incur if a loan is paid earlier than contracted to
iii. Restatement agrees with permitting collection of prepayment fees in case of
acceleration as does the court
iv. Court finds prepayment premium clause enforceable
u. Devlin v. Wiener
i. Devlin agreed to sell land to Pine Orchard for 86K in cash ± Devlin would in turn
payoff its mortgage ± the deal to sell was with conditions on what could be done
with the property
ii. Issue: is the transaction foreclosable as a mortgage
iii. Holding: yes, b/c although there was not actual amount specified in the mortgage
instrument it could be reasonably ascertained and the mortgage incorporated the
contract by reference thereto and the amount could therefore be determined
iv. If the contract did not state the amount it could not be determined the value of the
encumbrance
 %&2
   

c
 
ë Merger: when a mortgagee¶s interest and a fee title coincide and meet in the same
person the lesser estate (the mortgage) merges into the greater (the fee) and is
extinguished ± dependant on the intent of the parties
ë Merger Doctrine can be used either as a defense to the mortgage debt or as an
argument that the mortgage no longer exists
ë Deeds in Lieu: when foreclosure is impending the borrower may offer to deed the
property to the lender in lieu of foreclosure ± easy option to both parties



 c

 
 
 

a. Mid Kansas Federal Savings and Loan v. Dynamic Development Corporation
ë 
+ 

6 
+
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ë %$c$ñ$When a party holds a first and a second mortgage and
forecloses on the second, he cannot sue on the balance of the loan. 
ë Facts: Mid Kansas Fed¶l S&L loaned certain sums to Dynamic Development to
finance certain construction; The loan was secured by first and second deeds of trust;
The loan fell into arrears; Mid Kansas eventually exercised its sale powers under the
second deed of trust; Mid Kansas then sued for the difference between the sale
amount and the amount of the note; The trial court awarded damages in this amount;
Dynamic appealed
ë Issue: When a party holds a first and second mortgage and forecloses on the second,
can he sue for the balance of the loan? NO. The doctrine of merger and
extinguishment applies. 
ë Analysis:
d When a party holds a first and second mortgage and forecloses on the second, he
cannot sue for the balance of the loan. (WOULD BE UNJUST ENRICHMENT)
d When a property is bid upon at a foreclosure or trustee¶s sale on a second mortgage
or trust deed, the property is acquired subject to the first encumbrance, and it is
assumed that the bidders deducted the value of the first encumbrance insetting their
bid amounts
d Consequently, when the successful bidder at a sale on a second encumbrance also
holds a first encumbrance, to permit him to sue the debtor on the note secured by that
encumbrance would result in unjust enrichment
d This is because the lienor/bidder obtains the property at a discount equal to the
amount of the first encumbrance
d To allow him to recover on the note secured by the first would constitute double
recovery
d Here, Mid Kansas did obtain the encumbered property at a sale on the second
encumbrance
d As holder of the first trust deed, it cannot recover on the first. 
d Court refuses to allow merger doctrine to apply if doing so would be a detriment to a
party in whom the two interests are united.
ë Rules:
d Generally, when one person obtains a greater and a lesser interest in the same
property and no intermediate interest exists in another person, a merger occurs and
the lesser interest is extinguished.
d If one holding both junior and senior mortgages forecloses the junior and purchases
the property at the foreclosure sale, the long-standing rule is that, absent contrary
agreement, the mortgagor¶s personal liability for the debt secured by the first
mortgage is extinguished. 
d The basis of the merger of rights doctrine is that the purchaser at a foreclosure sale of
a junior lien takes subject to all senior liens. 
d Although the purchaser does not become personally liable on the senior debt, the
purchaser must pay it to avoid the risk of losing his newly acquired land to
foreclosure by the senior lienholder
d The land becomes the primary fund for the senior debt, and the purchaser is
presumed to have deducted the amount of the senior liens from the amount he bids
for the land. 



 c

 
 
 

d The merger of rights doctrine holds that the senior lien is merged into ± or
extinguished by ± the title acquired by the lienholder when he acquires the
mortgagor¶s equity of redemption under a sale on the junior lien. 
ë 0
d What do we have when someone acquires property without assuming the debt?
§ Transferee acquired property ³subject to´ the existing mortgage 
§ Original promisor is still liable on the note
§ THE LAND is primarily liable ± the land is the primary fund; 
§ When MK acquired property subject to land, THE LAND itself was the primary fund
for repayment
§ If allow MK to collect on note, it would be an injustice 
d Extensions of Mid-Kansas Principle
§ The merger principle was applied to prevent the lender from recovering after
foreclosure the pre-foreclosure profits earned by a receiver of property 

ñ'c80cñ0"c

 



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a. Graf v. Hope Building Corp.
u. Federal Home Loan Mortgage v. Taylor
c. Matter of Estate of Hansen
d. Inverse Order of Alienation Rule
 %

   % 
a. Notes
i. Strict Foreclosure: foreclosure in court but no judicial sale ± instead the
mortgagor is given a period of time to pay the debt and if not the mortgaged
property will simply vest in the mortgagor without sale
ñ 9
  
a. Notes
i. Prevailing method of foreclosure
ii. Foreclosure should terminate the rights of all interest parties who are µsubject to¶
the mortgage being foreclosed to give the foreclosure sale purchaser the title to
the land as it stood at the time of the time of the execution of the mortgage
iii. Judicial foreclosure does not terminate the rights of senior lienors to the
foreclosing party nor does it terminate unjoined junior interests
b. The Ommitted Party Problem
i. When any party having the right to redeem is omitted from a foreclosure action
his interest is not terminated by that action. The foreclosure is void as to that
party and his rights of redemption remain the same as before. The purchaser at
the foreclosure sale succeeds to the rights of the mortgagee even though the sale
is void as to an omitted party and also succeeds to the rights of all owners of
interest in the property subject to the mortgage who were joinged in the
foreclosure
ii. 2 remedies afforded omitted junior lienors: foreclosure and redemption
iii. 3 remedies afforded purchaser: redemption, re-foreclosure and strict foreclosure
c. Citicorp Mortgage v. Pessin
d. Portland Mortgage Co. v. Creditors Protective Association
e. Land Associates v. Becker



 c

 
 
 

  , 
  

  
i. Used mainly in instances where there is a Deed of Trust
ii. After notice the property is sold at public sale usually by a trustee (extent of
notice required varies)
iii. Elected for its comparable efficiency to judicial foreclosure without the expenses
and burdens
  
 *  ,
i. Baskurt v. Beal
ii. In Re Edry
iii. Glidden v. Municipal Autority of Tacoma
 ñ


 ,  , 

i. Ricker v. US
1. 5th amendment Due Process Clause
ii. Warren v. Government National Mortgage Association
  "
 
:
  
i. Attempt an uniformity in the real estate foreclosure cotex
  ! /    
1. Auction and sale
2. Foreclosure by negotiated sale
3. Foreclosure by appraisal
  
   
 
a. Notes
i. Where a foreclosure sale produces a surplus the liens and interests previously
attached to the real estate will now attach to the equity surplus, be paid from said
surplus and the remainder refunded to the previous owner
u. Bank of America v. BA mortgage
i. Enforcement of surplus rule
 c

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& 
a. Old Repuulic Insurance v. Currie
i. If the mortgagor is the purchaser or subsequently reacquires the property thre is
authority that the junior mortgages revive as liens on the property
ii. Reaquisition is held to revive on 3 distinct theories:
1. Payment theory
2. Covenant to defend title theory
3. Warranty of title theory
1 
 +c

§ the equitable right of redemption ends once a valid foreclosure has taken place
unless there is statutory redemption which provides an additional time period for
mortgagors and even junior lienors to pay to redeem title
§ a redeeming junior lienor will obtain the same title as the purchaser at foreclosure
§ under statutory redemption the redemption amount is is normally tied to the
foreclosure sale price rather than the mortgage debt
a. US v. Stadium Apartments
u. Farmers Production Credit Association v. McFarland
' 
6 
+&



c
 
§ The traditional approach and the Restatement agree that upon default and
accedleration the mortgagee has two options. It may either (1) obtain judmgnet
on the personal obligations and enforce it by levying upon any of the mortgagor¶s
property and, thereafter, if insuffient, foreclose on the property; or (2) foreclose



 c

 
 
 

on the real estate first and if the proceeds are insufficient obtain a deficiency
judgment after
§ Deficiency is calculated by subtracting the foreclosure sale price from the
mortgage obligation
§ If the foreclosure is by power of sale however the mortgagee obtains a deficiency
judgment by filing a separate judicial action
§ Majority of states limit the mortgagee¶s right to a deficiency judgment such as
strict notice and time requirements
a. DeBerard Properties v. Lim
i. Virtually all post-default waivers of §580b (in CA) are unenforceable
u. Taluott v. Hustwit
c. Bowen v. Yniguez
d. Mid Kansas Federal Savings & Loan v. Dynamic Development Corp.
$  ! ñ!c 
9 

+
a. Introductory Concepts
i. The trustee has a legitimate interest in mortgaged real estate only if the debtor
has µequity¶ in the property. Absent equity the trustee should abandon the RE to
the mortgagee who can then proceed to foreclose
ii. If equity exists the RE will be sold by the trustee either subject to the existing
mortgages and other liens or free and clear of them
iii. Trustee¶s Avoidance Powers: the trustee in bankruptcy seeks to enlarge the asset
pool available to satisfy the claims. As a representative of the debtor she can
avail herself of any defense available to the debtor against the mortgagee even if
waived by the debtor after bankruptcy
  ñ
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;


i. Notes
1. The debtor under a Ch. 11 remains in possession and can avail itself of
any avoidance powers of a Ch. 7 Trustee
2. §362 of the Code allows for a stay to be lifted (1) for cause, including the
lack of adequate protection of an interest in property; or (2) with respect
to a stay of an act against property if the mortgagor does not have an
equity in such property and such property is not necessary for an
effective reorganization
ii. In Re Gunnison Center Apartments
 
&6

+  
i. Notes
1. Not only may a trustee set aside a transfer by a debtor within 2 years of
bankruptcy that was intended to defraud, hinder or delay present or
future creditors, she may also avoid such a transfer irrespective of debtor
intent if the debtor received less than a reasonably equivalent value in
exchange for such transfer and was insolvent on the date of such transfer
ii. In Re Ehring
 c



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+
i. In RE Heward Brothers



 c

 
 
 

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§ A mortgage that the mortgagor grants to enable the mortgagor to acquire
ownership of the mortgaged land
§ Has a special priority over all other recorded liens and judgment
§ When a portion of the loan is used for construction on the property that portion
would be considered a purchase money mortgage and as such the law provides
the whole encumbrance will be treated as a PMM
a. Kentucky Legal Systems Corp v. Dunn
   6 +ñ


 
&
ñ

§ Sometimes creditors may wish to take as security future inventory ± in order to
do so there must be an µafter acquired property clause¶ or a security agreement
everytime new property is acquired
§ A Dragnet Clause states that the RE covered by the mortgage will stand as
security not only for the loan now being made but also for any other debt for
which the borrower is already liabile to the lender or for which the borrower may
become liable to the lender in the future, until the mortgage is satisfied
a. Hickson Lumuer Co. v. Gay Lumuer Co.
u. First Sec. Bank of Utah v. Shiew
i. To be secured under a Dragnet Clause ³the advances must be made in a
transaction similar in character to the mortgage transaction, unless (1) the
mortgage describes with reasonable specificity the additional type or types of
transactions in which advances will be secured; or (2) the parties specifically
agree that the mortgage will secure them

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i. Can be done either by incorporation of subordination language in the document
or by order of recording
ii. Absent clear indication to subordinate the PMM the courts will presume it is
senior in priority
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i. Filed on the property by the contractor and by the workers and material suppliers
if the developer fails to pay them
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i. Unity ownership ± ownership of a specific portion of a larger parcel or structure
ii. A condominium is created by the execution and recording of a µdeclaration¶



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i. People join together as buyers or sellers creating a group which will have greater
power in the marketplace than any individual
ii. Generally under blanket mortgage which precludes flexible financing and
increased inter-dependence amidst the members
 

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i. A blend of subdivision with the concept of shared ownership of common
facilities
ii. Ownership is generally vested in an incorporated homeowner¶s association and
residents retain fee simple ownership in their individual units
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a. Tara Manatee, Inc. v. Fairway Gardens
i. Developer Guarantee Provision (in FL) developer should be excused from
payment assessments on its units during the initial sales phase when its units are
typically unsold and thus not consuming the services of the association but the
developer must guaranty the assessments against nondeveloper unit owners will
not exceed a stated dolar amount and agree to fund any deficit incurred
b. Condominium and Cooperative Abuse Relief Act of 1980
c. State Savings & Loan v. Kauaian Development
d. Glenview State Bank v. Syman
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i. Will v. Mill Condo Owners Association
ii. Evergreen Highlands Association v. West
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i. Board of Directors of Homeowners Ass¶n v. Hinojosa
ii. Committee for a Better Twin rivers v. Twin Rivers Homeowner¶s Ass¶n
iii. Aquarian Foundation v. Sholom House



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December, 2009

MUESTION I

A. Vera has no interest; in some states the buyer has no interest before the closing; in other states
there are issues as to notice. Lenden probably had notice of Bob¶s interest and, if so, Bob had and
has priority. Nellie is acquired interest after Linden¶s mortgage so her interest is gone unless
protected by a mortgage provision in the declaration.
B. (1) Dave sold to Trudy µsubject to¶ thus creating a surety/land. Since the FMV decreased to 300K
and the indebtedness is 300K Dave is liable for 50K. There was probably no loss from the
extension and there was probably no liability for the increase in interest rate.
(2) Trudy assumes: David can sue her choosing subrogation, reimbursement or « / Dave can
foreclose against the property under subrogation to bank «
C. Amos files BR petition.
1. Billy asks that Amos assume: if the court treats the contract as a mortgage she will lose.
Under liberal application of Countryman, the contract is executed under BR 365 and if
the court applies the facts

MUESTION II

A. **
B. **
C. **

MUESTION III

December, 2008