Real
Cases in Real Estate
is a weekly update on real estate law, with legal principles illustrated and
explained by lawsuits from around the country. The topics are wide-ranging for
appeal to a broad spectrum of readers including lawyers, homeowners, investors
and the general public. Andrea Lee Negroni, a Washington DC
attorney and legal writer with 25 years of experience in financial services and
mortgage law, contributes the case summaries.
Followers of
Real Cases in Real Estate will learn and be entertained by lawsuits
involving nuisance, trespass, zoning violations, deed restrictions, title
insurance, public utilities, mechanics liens, construction defects, adverse
possession, foreclosure and eviction, divorce and marital property rights,
tenants' rights, and more. Real Cases in Real Estate uncovers the
unpredictable, amusing, and sometimes outrageous disputes between next-door
neighbors, contractors and homeowners, condo boards and residents, real estate
brokers and homebuyers, and zoning administrators and developers.
Each fully
cited case summary highlights the essential law of the case and explains the
principal legal theories and concepts relevant to the outcome. Plain language
treatment makes Real Cases in Real Estate accessible to lawyers and
laymen alike.
Whether you
follow real estate law professionally or as a hobby, you'll find something new
and useful every week in Real Cases in Real Estate.
Updates
for the Week of May 21st, 2012
A remorseful seller cannot characterize an option to repurchase property
as a debt so as to recharacterize a sale as an equitable mortgage.
The Johnsons bought a home in
Norfolk, Virginia in 1995; when its value rose, they refinanced it. By 2005,
they were behind in their mortgage payments but could not refinance again because
of their poor credit and prior bankruptcies. A mortgage broker introduced the
Johnsons to a private investor, Washington, who bought their house with
financing in the form of two new mortgages. Washington used the loan proceeds to pay off
the Johnsons' existing mortgage and return some of their equity to them. The agreement between Washington and the
Johnsons allowed the Johnsons to rent the home with the option to repurchase it
from Washington
after 13 months. The documents in the transaction reflected an absolute sale of
the Johnsons' property to Washington.
There was a "Contract for Deed of Real Property" and a HUD-1 Settlement
Statement.
The Johnsons did not read the
documents they signed. They remained in the home after the sale, but after six
or seven months, they defaulted on their rent. They sued to impress the
property with an equitable mortgage. The Fourth Circuit rejected the Johnsons'
claim, finding that because there was no pre-existing or contemporaneous debt
between the parties, there was no equitable mortgage.
The decision highlights the
distinction between an option to
repurchase and an obligation to
repurchase. An option creates no debt between the parties and no recourse
by one party against the other. The lack of a right of recourse is inconsistent
with debt. The Court noted that "because equitable mortgages are an exception
to the rule that parole evidence is inadmissible to contradict the terms of a
contract, the proof necessary ... must be so convincing as to leave no doubt on
the mind that a mortgage, and not an absolute conveyance, was intended." The
Court would not permit a seller who later regretted the sale to convert the
transaction to an equitable mortgage.
Johnson v. Washington,
et. al., 559 F.3d 238, 2009 US
App. LEXIS 3596 (4th Cir. 2009) [enhanced version available to lexis.com subscribers].
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