REAL ESTATE TRANSACTIONS AND FINANCE
Fall Semester 2015
Mortgage Substitutes: Equitable Mortgages and Installment Land Contracts
Reading Assignment: NWBF pp. 285-301, 309-351
1.
Uphoff borrows $200,000 from Lambert to pay off his massive gambling debts. Uphoff
grants Lambert a mortgage on his home, worth $300,000. The mortgage provides that “In case of
Uphoff’s default, Lambert has the option to purchase the mortgaged premises for an amount equal
to the balance remaining due on the mortgage debt, plus $5.” If Uphoff defaults, can Lambert get
specific performance of this option? If so, why? If not, why not?
2.
Do you agree that the Perry v. Queen case (p. 292) is rightly decided? Why or why not?
3.
On April 1, Lambert paid $160,000 to Wells, who executed and delivered to Lambert a deed
purporting to convey title to Greenacre to Lambert. At the time, Wells used the $60,000 to pay some
medical expenses that she had incurred. By a separate writing, Lambert agreed to convey the land
back to Wells, if Wells paid Lambert $168,000 on or before August 1. August 1 came and went
without payment by Wells. On September 1, Wells attempted to pay Lambert $168,000 and
demanded that he deed the land back to her; Lambert refused to accept it and filed an action to eject
Wells from possession of Greenacre (which she had remained in possession of at all times). Can
Lambert eject Wells, or should the court recharacterize this transaction as an equitable mortgage?
What arguments would you make for Lambert? For Wells? What additional information would you
want to identify in making a determination whether to recharacterize the transaction as an equitable
mortgage?
4.
Lambert signs a contract to buy a TV from Tiger John for $3,000 (plus interest), payable in
10 monthly installments of $350. Their written contract states that Tiger John will retain title to the
TV until Lambert completes all payments, at which time Tiger John will deliver a bill of sale for the
TV. Lambert makes nine payments and misses the tenth payment. Pursuant to the terms of the
contract, Tiger John repossesses the TV, writes a letter to Lambert terminating the contract, and
keeps all of Lambert’s prior payments. Assume that both Lambert and Tiger John are residents of
New Mexico (where Russell v. Richards was decided) and that this transaction took place entirely
within the State of New Mexico. Can Tiger John keep the TV and all of Lambert’s payments?
Would the court’s reasoning in Russell v. Richards control resolution of this issue? Why or why
not? See U.C.C. § 1-201(b)(35) (“‘Security interest’ means an interest in personal property or
fixtures which secures payment or performance of an obligation. ‘Security interest’ includes any
interest of a consignor and a buyer of accounts, chattel paper, a payment intangible, or a promissory
note in a transaction that is subject to Article 9. ‘Security interest’ does not include the special
property interest of a buyer of goods on identification of those goods to a contract for sale under
Section 2-505, the right of a seller or lessor of goods under Article 2 or 2A to retain or acquire
possession of the goods is not a ‘security interest’, but a seller or lessor may also acquire a ‘security
interest’ by complying with Article 9. The retention or reservation of title by a seller of goods
notwithstanding shipment or delivery to the buyer under Section 2-401 is limited in effect to a
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reservation of a ‘security interest.’ Whether a transaction in the form of a lease creates a ‘security
interest’ is determined pursuant to Section 1-203.”).
5.
The three principal cases on installment land contracts — Russell v. Richards, Petersen v.
Hartell, and Sebastian v. Floyd — adopt three radically different philosophical approaches to the
proper interpretation of the rights/obligations of the parties to an installment land contract (ILK).
Can you explain these three philosophical approaches and the differences?
6.
In Russell v. Richards, it appears that immediately prior to her default, Ms. Russell had over
$56,000 worth of equity in the land ($82,735 FMV, less the principal balance of $26,504 remaining
on the ILK). For several stated reasons, the court does not allow her to recover any of that equity
following her default. Evaluate the reasons given by the court for not protecting her equity. Are you
persuaded? Why or why not?
7.
In Petersen v. Hartell, can you explain the basis for the disagreement between the majority
(who treat the arrangement as an ILK, but require the seller to make restitution of excess damages
to the buyer) and Chief Justice Bird’s dissent (which would have treated the ILK as a mortgage)?
Why is the majority not willing to go that far? [Note: This disagreement rests in part upon a point
peculiar to California law — you will need to read carefully to figure it out.]
8.
Under the approach articulated in Petersen, suppose that a buyer had a right to specific
performance (a “right of redemption” as the court called it), but cannot actually make full
performance. What happens then? How would the court calculate the amount of payments, if any,
for which the Seller would have to make restitution to the Buyer?
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