The residual property interest retained by the grantor of a fee simple determinable estate is termed a "possibility of reverter," and is only unreasonable if the reverter conditions are "capricious, malicious, unlimited in duration, affect a large number of potential investors, or serves no legitimate interest of the grantor."
This case concerned a piece of land worth in excess of $ 100,000 that was conveyed within the family for $ 15,000. The real estate contract and deed, both of which were recorded, included an automatic reverter to the grantors if the grantee mortgaged or otherwise encumbered the property during the grantors' lifetime. The grantee encumbered the property and then defaulted on the promissory notes. The bank bought the property at the trustee's sale. The surviving grantor brought this quiet title action to enforce the automatic reverter. The lower court entered a summary judgment in favor of the defendant stating the automatic reverter clause was an unreasonable restraint on alienation. Plaintiff appealed.
Was an automatic reverter conditioned on "mortgaging or otherwise encumbering a property" for the duration of grantor’s lifetime an unreasonable restraint on alienation?
"Here, the Alby restriction is not capricious or malicious. And it is of limited though indeterminate duration. It serves, moreover, a worthwhile purpose. It protects the legitimate interest of the Albys in securing for themselves the comfort of knowing they will not be around to see the next generation mortgage the property to the hilt and then lose it by defaulting on the loan. The dissent takes the view that once the Brashlers paid the $ 15,000 contract price, the Albys had no further interest in the property. But financial interest is not the only interest for the purposes of reasonableness analysis. In exchange for a fraction of the market value, the Albys handed over a substantial bunch of the sticks. The conveyance was precisely crafted in the parties' mutual interests. Public policy would not be served by restricting property owners and their grantees to either all or nothing conveyances."