Daily Development for Monday, November 5

 

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of
Law
UMKC School
of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City,
Missouri
prandolph@cctr.umkc.edu

 

Another contribution from Bush Nielson:

 

VENDOR/PURCHASER; TITLE; PRIOR LIENS:  Seller lands in prison for not paying off or obtaining release from  blanket  mortgage upon sale of lot.

 

State v. Love, ___ S.W. 3d ___, 2002 WL 31012769 (Mo.App.S.D.) (not yet released for publication).

 

The court here affirmed a felony conviction on an unlawful merchandising charge, as to a Missouri seller who failed to provide a release of some lots from a blanket mortgage.  The case suggests a tough, creative way to deal with real estate swindlers.

 

Gary Love, a real estate developer, sold two lots in a sub-division to Roy Williams.  The closing was rather casual.  Love produced a title commitment showing a blanket mortgage, and a letter in which he promised to get a release of the lots and have a title insurance policy issued.  Williams, like most consumers, did not notice the fact that he never got his title policy.  A year later, he learned that the $195,000 mortgage was still of record against his $75,000 lots.  Worse, he discovered this when he learned that the bank was foreclosing on the mortgage.

 

Williams bought the mortgage loan and called the sheriff, who followed the money trail to one of Love's bank accounts.  When he was hauled in, Love said he had kept Williams' money "because he needed 'surplus money' and . . . he 'just screwed up.'" He also volunteered that "I'm sure I'll have to pay for that one."

 

Pay he will, perhaps more than he had expected.  Love was charged with unlawful merchandizing.  The law prohibits fraudulent business practices:

 

The act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade of commerce . . . is declared to be an unlawful practice . . . .   Any act, use or employment declared unlawful by this subsection violates this subsection whether committed before, during, or after the sale, advertisement or solicitation.

 

A violation is a felony.

 

Love was sentenced to three years in prison.  He appealed, but the judgment and sentence were affirmed.  One witness testified that Love had been tardy in paying off a prior loan.  The court decided that this incident did not establish Love's intent to steal the money at the later Williams closing, but neither did it warrant a mistrial.

 

Editor's Comment 1: This ought to get the attention of your "careless" developer clients.

 

Editor's Comment 2: This is the relatively unusual situation of the "seller to pay" transfer subject to a mortgage.  More typically, when parties transfer property subject to a mortgage, it is the expectation at least that the land will stand first as security for the mortgage, even if the buyer doesn't assume.  The price is adjusted accordingly.  That didn't happen here.  In this situation, the buyer will be able to avail of the defense of equitable marshalling, permitting the buyer to invoke the "inverse order of sale rule" to insure that the developer's property and any lots sold after the buyer's lots must be applied to the debt before buyer's lots are applied.

 

The Reporter for this item is Bushnell Nielson, writing in his excellent Title Insurance Law Newsletter.  Visit WWW.woodridgelegal.com for information.

 

 

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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