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    Property Keyed to Saxer

    Schrader v. Benton

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      Charles and Elizabeth Benton (Defendants) owned a condo. Defendants had executed a mortgage on the property in favor of Amfac Financial (Amfac) for $31,800. The mortgage contained a provision requiring Defendants to get Amfac’s consent to any sale or have the balance accelerated. Defendants negotiated to sell their condo to Philip Harder for $44,500. Under the terms of the Deposit, Receipt, Offer and Acceptance (DROA) contract, Harder agreed to pay $7,000 in cash and the $37,500 balance over three years at a nine percent interest rate in monthly installments of at least $325. The DROA stated that the condo was being sold subject to Amfac’s mortgage, but the parties agreed that the property was to transfer free of the mortgage. Harding assigned his interest under the DROA to Dean and Barbara Schrader (Plaintiffs). Defendants did not want to pay off the mortgage at closing. Rather, the parties would enter a wrap-around financing agreement, under which Defendants would continue making payments on the mortgage as Plaintiffs paid installments to them. This would allow Plaintiffs to avoid the high interest of an institutional mortgage loan and Defendants to enjoy a greater rate of return on the sale. After paying off the mortgage, Defendants stood to earn $12,700 on the sale. The DROA required consent of any necessary third parties. Amfac would not consent to the sale free of its mortgage but would have permitted Plaintiffs to assume the obligation, which Defendants rejected. Plaintiffs sued for specific performance. Both sides moved for summary judgment, which the court granted in favor of Plaintiffs. The trial court gave Plaintiffs the option to pay the purchase price in cash or assume the loan, in which case Defendants would remain secondarily liable for two years. Defendants appealed to the Intermediate Court of Appeals of Hawaii.

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    Schrader v. Benton