(from prior exams in Real Estate Finance or Real Estate Transactions and Finance)

1. O owned Blueacre subject to a duly recorded first mortgage to First Bank. O defaulted on the mortgage. The balance of the mortgage was $120,000. First Bank accelerated the mortgage debt and scheduled a foreclosure sale under the mortgage’s power of sale. The sale was scheduled for April 1, and Bank gave proper notice under state statutes. According to a local real estate broker, the property’s fair market value on April 1 was $130,000.

On March 15, P approached the Bank. P stated that she wanted to buy the property, but had only $25,000 cash — not enough to purchase the property at a foreclosure sale. P then offered to purchase the land from the Bank for $125,000, subject to the following contingencies: (a) that the Bank would acquire title at the scheduled foreclosure sale, and (b) that the Bank would make P a mortgage loan in the amount of $100,000. Bank agreed, and the parties signed a contract on that date, with a closing scheduled on April 15.

On April 1, Bank was the high bidder at the sale, for a price of $100,000. On April 15, Bank sold the property to P in accordance with the March 15 contract. On May 1, Bank sued O, seeking a deficiency judgment of $20,000. Blueacre is located in a jurisdiction that does not have a “fair value” statute. Can Bank recover a deficiency judgment? Why or why not?


2. (a) On May 1, 1993, P signed an installment land contract to purchase Brownacre from O. The contract provided for a price of $70,000, an interest rate of 10%, and monthly payments of $800. [Based upon these payments, it would take P 158 months, or just over 13 years, to complete all necessary payments.] On May 1, 2001, after making 96 monthly payments totaling $76,800, P missed his monthly payment. O sent a letter to P stating that she would terminate the contract unless P immediately paid O the remaining balance due under the contract (which was $35,000) within 30 days. P was unable to meet this demand. Can O terminate the contract and evict P? Explain.

(b) For purposes of this subquestion, assume that O is entitled to evict P. P has filed a counterclaim seeking to recover the $76,800 in payments P has made under the contract. O has now signed a contract to sell the land to Z for $60,000. Is P entitled to recover any amount on its counterclaim? If so, how would you calculate the amount P is entitled to receive? What additional information would you need to calculate the amount P is entitled to receive?


3. Wells is the owner of the Huge Office Building, where your law firm leases office space. Wells has made what (at first blush) appears to be an irresistible offer to your firm: if your firm will prepay the next two years’ of rent by January 1, 2009, Wells will discount the rent by 25%. Your firm is flush with cash, thanks to a recent personal injury case in which your firm won a substantial verdict for the plaintiff and obtained a seven-figure contingent fee. You are the real estate guru in your firm, and the firm’s managing partner (who wants very much to take this deal) has asked you whether there are any reasons not to take this deal. What is your advice, and why? If you believe you need additional information, identify what information you would need and how it would influence your advice.


4. Representative Henson is a newly-elected member of the Missouri General Assembly. He plans to introduce a bill, H.R. 25, that would (if enacted) modify Missouri's nonjudicial foreclosure statute by adding the following provision:

(a) Following a foreclosure sale after default, the trustee's deed transfers to the foreclosure sale purchaser all of the mortgagor's title to the mortgaged premises, discharges the lien of the foreclosed deed of trust, and discharges any subordinate liens.

(b) A foreclosure sale purchaser that acts in good faith takes free of the rights described in paragraph (a), even if the foreclosing mortgagee or the trustee failed to comply with the requirements of this Chapter.

[You may assume that the term "this Chapter" in paragraph (b) refers to Missouri's nonjudicial foreclosure statute as a whole.]

First, explain how this provision, if enacted, would change existing Missouri law. Second, provide (and justify) your opinion as to whether the General Assembly should adopt H.R. 25.


5. In 1998, Bowman borrowed $500,000 from BankOne. He used a portion of the proceeds of this loan to purchase a parcel of undeveloped land (Greenacre) which was zoned for commercial use. Bowman granted a deed of trust on Greenacre to BankOne, which BankOne properly recorded on February 1, 1998.

In March 1998, Bowman used the remaining proceeds of the loan to build a gas station and convenience store on the land, which he operated until August 2005.

Beginning in September 2005, Bowman stopped selling gas and instead converted the building into a bar, which he called Hearsay. He operated Hearsay until August 2010, when the authorities revoked his liquor license after repeated instances in which Hearsay's bartenders served underage patrons in violation of state alcohol regulations.

Also in August 2010, Paula Plaintiff obtained a judgment against Bowman in the amount of $250,000 (one of Hearsay's bartenders had negligently continued to serve a drunken patron, who later caused an automobile accident that injured Paula severely).

Since July 2010, Bowman has not made any monthly payments to BankOne. On October 15, 2010, BankOne properly accelerated the debt secured by the mortgage and made a written demand that Bowman pay the remaining balance of $395,000 immediately. Bowman's written response was: "I will no longer be able to pay the debt, and will probably be forced into bankruptcy. Rather than put BankOne to the trouble of foreclosing and incurring additional expenses that I can't pay, I have executed and am hereby delivering to BankOne a deed conveying title to Greenacre to BankOne in satisfaction of the debt."

You are the loan officer at BankOne responsible for this loan. Should you accept Bowman's offer, or not? Explain. If you believe that you need additional information to evaluate Bowman's offer, what information would you want to obtain, and how would it influence your answer?