Question

An entrepreneur opened a specialized business on her land. After using up most of her capital to purchase inventory, however, the entrepreneur needed more funds and asked her friend for a $30,000 loan, to be secured by the business's inventory. The friend declined the loan. A desperate entrepreneur then told the friend she would convey the land, which had a fair market value of $100,000, to him if he would give her the loan at the current market rate of interest. The friend agreed, and the entrepreneur conveyed the land to the friend the next day. At that time, the friend gave the entrepreneur $30,000 in cash, and the parties orally agreed that the entrepreneur would pay the friend back at the rate of $1,000 per month, and that after the loan was paid in full, the friend would reconvey the land to the entrepreneur. The friend immediately recorded his deed to the land.
The entrepreneur made three $1,000 payments to the friend and then paid no more. She continued to live on the land but, being very much in debt, could not repay the loan. The friend, meanwhile, had received an offer to buy the land for $100,000.

Which of the following most accurately states the friend's right to sell the property?

A The friend may sell the land and keep the entire proceeds.
B The friend may sell the land, but he must give $73,000 of the proceeds to the entrepreneur.
C The friend may sell the land only after formally foreclosing on the property.
D The friend may not sell the land.

Answer 1

Answer:

C) The friend may sell the land only after formally foreclosing on the property.

Explanation:

The friend is not the current owner of the land, but he will be if he forecloses the property. The friend received the deed for security purposes, but the ownership was not transferred. This deed can be treated as a mortgage and the friend (creditor) needs to foreclose it thorough a judicial actions before being able to sell it to a third party.

The friend may sell the land, but only after formally foreclosing