American Savings and Loan Association (American) held a first ...

[bobbysung]

American Savings and Loan Association (American) held a first deed of trust on certain incomeproducing property. The deed of trust had a dueonsale clause. American permitted several transfers without requiring an increase in the interest rate due on the underlying obligation. Mr. Witter was one of the transferees of the property and he had defaulted on the American deed of trust as well as on a second deed of trust held by Mr. Master (Mr. Witter's seller). American permitted Master to foreclose with the understanding that after Master acquired title to the property, there would be no increase in interest rates for a limited period during which Master would dispose of the property. Master failed to inform American that when he acquired title, he entered into an agreement with Mr. Medovi and carried a second deed of trust on the property. Medovi's broker, Mr. Glick, carried a third deed of trust on the property. When American discovered Master's action, it told Medovi he could assume the loan provided the interest rate was increased to market levels. Medovi refused to pay, and American commenced foreclosure. Did American act properly? Why or why not?

Question 2

Consider the following grant: This transfer or deed is made with the full understanding that should the property fail to be used for the Church of God, it is to be null and void and property to revert to W. E. Collins or heirs. Discuss the interests created.

[tranoy]

Answer to Question 1

Your answer will vary according to your state's ruling on dueonsale clauses. In this case, involving a state that requires proof of jeopardy of security, the court held there could not be an increase since there was more security.

Answer to Question 2

There is a fee simple defeasible. Whether there is a determinable or one subject to a condition subsequent depends upon the interpretation of the language. The language seems to connote time, not conditional grant so that it would be appear to be a determinable. However, the law tends not to favor determinable, but conditions subsequent because some action is required to gain title. W.E. Collins and his heirs hold a future interest that is either a possibility of reverter or a right of re-entry, depending upon the interpretation of the type of present interest.