Grant v. Kahn - 198 Md. App. 421, 18 A.3d 91 (2011)

Rule:

It is a general rule that the holder of an equitable title or interest in property, by virtue of an unrecorded contract of sale, has a claim superior to that of a creditor obtaining judgment subsequent to the execution of the contract. The effect of such a contract is to vest the equitable ownership of the property in the vendee, subject to the vendor's lien for unpaid purchase money, and to leave only the legal title in the vendor pending the fulfillment of the contract and the formal conveyance of the estate. The right of the vendee to have the title conveyed upon full compliance with the contract of purchase is not impaired by the fact that the vendor, subsequently to the execution of the contract, incurred a debt upon which judgment was recovered. A judgment creditor stands in the place of his debtor, and he can only take the property of his debtor subject to the equitable charges to which it is liable in the hands of the debtor at the time of the rendition of the judgment.

Facts:

Kareem Grant and Jeffrey Ganz entered into a contract, whereby Grant agreed to purchase, and Ganz agreed to sell a residential property for the sum of $320,000. The contract included a financing contingency provision. While the contract was pending, but before settlement occurred, appellees, Stacy G. Kahn and Steven Kahn ("the Kahns"), filed a Complaint for Confessed Judgment against Ganz, and the circuit court entered a Judgment by Confession against Ganz. Without any knowledge of the confessed judgment, Grant completed the purchase of the property from Ganz several days later. Thereafter, the Kahns filed a Request for Writ of Execution by Levy on the property, which Grant then owned. Grant responded by filing a Motion to Release Property from Levy. After a hearing, the circuit court denied Grant’s motion, holding that equitable title to the property did not pass to Grant because the financing contingency in the contract had not been satisfied on the date that the confessed judgment was entered. Grant appealed. 

Issue:

Did the circuit court err in holding that, as a matter of law, equitable title to the property did not pass to Grant, as purchaser, under a contract of sale executed and delivered prior to the entry of the confessed judgment against Ganz, as seller, because a financing contingency in the contract had not been satisfied or removed on the date that the confessed judgment was entered?

Answer:

Yes.

Conclusion:

The appellate court held the creditors could not then impose a judgment lien on the property because under the doctrine of equitable conversion, once the seller and buyer contracted to sell the property, the buyer obtained equitable title, and the seller retained mere legal title. According to the court, a financing contingency in the contract did not bar the buyer from obtaining specific performance of the contract, as it benefitted only the buyer, the buyer could waive the contingency at any time, neither party exercised an option to terminate the contract, and, once the buyer tendered the full purchase price for the property, the seller had no option but to convey the property, such that the buyer could have sought specific performance. The court averred that public policy favored the buyer's position because allowing the judgment creditors to impose a judgment lien on the property would expose buyers to significant risks associated with sellers with poor credit histories or financial difficulties. Accordingly, the trial court’s judgment was reversed.