|
Daily Development for MORTGAGES; EQUITABLE MORTGAGES; ABSOLUTE
DEED INTENDED AS MORTGAGE; FORECLOSURE SETTLEMENTS: Conditional
deed given as part of settlement of foreclosure action is not a mortgage
within meaning of Florida statute providing that conveyances “securing the
payment of money” shall be mortgages, even though the conditions of the deed
provided that if the borrower did not pay scheduled payments for one year
following the date of the deed, the lender could record the deed, take title,
and evict borrower on ten days notice. Rothschild Reserve Intern, Inc. v. Silver, 830 So.
2d 224 ( A number of states have statutes
similar to the The court states here that the statute was intended only to protect debtors when there had been no mortgage given, and when the only evidence of the security relationship was an absolute deed. In such cases, the court says, the statute’s provisions are necessary to protect the equity of redemption. Here, where the parties were already in a debtor/creditor relationship and had a mortgage, so, the court argues, the debtor had received the benefits of the equity of redemption. Somehow, in the court’s view, the fact that the borrower had the equity of redemption in the circumstances existing prior to the settlement of the foreclosure satisfies the statutory policies, and there is no need to recognize an equity of redemption subsequent to the settlement. Although the court says at another point that cases in this area should be decided on a case by case basis, its conclusion that the statute is not intended to apply where there is a preexisting mortgage suggests a categorical approach. The court does not purport to analyze
or apply the common law, and limits its review of precedent to cases
construing the Comment: The editor is aware that there are some in the practice community that view the conditional deed in a post default workout as the equivalent of a deed in lieu of foreclosure. They are content with the argument that the benefits that the borrower receives in connection with the workout justify setting aside the classic common law protection of the secured debtor from his own poor judgment in agreeing to waive the equity of redemption. The problem that the editor has with this argument is that there is no rationale basis to differentiate between a secured debtor who negotiates credit terms for a future repayment of the debt and a failed borrower who is arguing for an extension of the credit terms. In both cases, the debtor perceives that there is a benefit in making the arrangement and expects to be able to perform. The fundamental purpose of the equity of redemption is the recognition that the debtor’s judgment in these cases is necessarily clouded, and that the debtor is unable to focus properly on the grim reality of what happens if the debtor doesn’t pay. Consequently, the courts have guaranteed the debtor a “second look” and the protection of a foreclosure sale to be sure that the debtor has an adequate last opportunity to redeem and has some protection against unscrupulous lenders forfeiting property valued in excess of the debt. If we accept the premise that underlies the equity of redemption in the first place, the editor believes that it ought to be recognized in the case of workouts. The extension of time provided to the borrower in a workout situation is, in effect, a new debt, and the debtor’s permitting the lender to have a conditional deed to secure the debtor’s performance ought to be regarded as a mortgage. There may be some special circumstances in which the editor would conclude that the common law objectives are otherwise satisfied, but there seems to be no inkling of such circumstances in this case. Readers are encouraged to respond to or criticize this posting. Items reported on DIRT and in the Parties posting messages to DIRT are
posting to a ABOUT DIRT: DIRT is an internet discussion group
for serious Daily Developments are posted every
work day. To subscribe Dirt [your name] to listserv@listserv.umkc.edu To cancel your subscription, send the
message listserv@listserv.umkc.edu for information on other commands, send the message
DIRT has an alternate, more extensive
coverage that includes not only To subscribe to BrokerDIRT, send the message subscribe BrokerDIRT [your name] to listserv@listserv.umkc.edu To cancel your subscription to BrokerDIRT, send the message listserv@listserv.umkc.edu DIRT is a service of the American Bar
Association DIRT has a WebPage
at: Members of the ABA Section on Real
Property, Probate |