Estate of Bolen v. Bolen
169 S.W.3d 59, 2005 WL 1704830, 2005 Ky. App. LEXIS 165 (2005)
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Rule of Law:
A vendor of real property retains a vendor's lien by operation of law for the unpaid purchase price, even if no lien is expressly reserved in the deed. Upon the vendee's default, the vendor's exclusive remedy is a judicial foreclosure sale, not an equitable reconveyance or forfeiture.
Facts:
- In 1994, Jackie Bolen conveyed a plot of land with four rental trailers to his sister, Mabel Bolen, her husband, Andy Bolen, and their daughter, Barbara Porter, through a deed granting rights of survivorship.
- The transaction was documented by a deed stating $25,000 consideration and a separate installment 'Sale Contract Agreement' for a total of $55,000, payable in monthly installments of $500.
- Neither the deed nor the sale agreement expressly retained a lien on the property or specified a remedy for default in payments.
- The agreement stipulated that if the buyers decided to sell the property, Jackie Bolen would have the right of first refusal.
- Payments on the installment contract eventually fell into default.
- Mabel Bolen died in 1999, and Andy Bolen died in 2001, leaving Barbara Porter as the sole owner of the property by operation of the survivorship deed.
Procedural Posture:
- Prior to the lawsuit, Barbara Porter filed a Chapter 7 bankruptcy petition, which discharged her from personal liability for the debt to Jackie Bolen, but the bankruptcy trustee abandoned the property, allowing Jackie to proceed against it 'in rem'.
- Jackie Bolen filed an action in the Knott Circuit Court (trial court) seeking a monetary judgment for the balance due under the sales contract.
- Bolen later amended his complaint to request the equitable remedy of reconveyance of the property.
- The Knott Circuit Court found in favor of Jackie Bolen and ordered Barbara Porter to reconvey the property to him.
- Barbara Porter (Appellant) appealed the circuit court's judgment to the Kentucky Court of Appeals.
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Issue:
Does a seller's proper remedy for a buyer's default on an installment land sale contract, where no lien was expressly retained in the deed, consist of an equitable reconveyance of the property?
Opinions:
Majority - Vanmeter, Judge
No. The proper remedy for a seller upon a buyer's default in an installment land sale contract is a judicial foreclosure sale, not an equitable reconveyance of the property. The court reasoned that under long-standing Kentucky law, a vendor automatically retains a lien on the property for the unpaid purchase price by operation of law, even if no lien is expressly reserved in the deed. This vendor's lien makes the seller a secured party. Citing Sebastian v. Floyd, the court held that there is no practical distinction between a land sale contract and a purchase money mortgage. Therefore, the seller's remedy upon default is to initiate a foreclosure action, where the property is sold at a public auction. This procedure protects the buyer's equitable interest by allowing them to receive any surplus from the sale after the seller's debt and expenses are paid. Ordering reconveyance was an error because it constituted a forfeiture and was an improper use of an equitable remedy when an adequate legal remedy (foreclosure) was available.
Dissenting - Miller, Senior Judge
Yes. The chancellor's order of reconveyance was a correct use of equitable power given the unique circumstances of the case. The dissent argues that the trial court's factual finding that Jackie retained no lien should be given deference. Without a lien, there was no adequate remedy at law, making an equitable remedy like reconveyance appropriate. This was a less-than-arm's-length family transaction, not a standard commercial deal. The majority's solution of a forced judicial sale is something neither party sought and would likely result in the property being sold outside the family. The dissent would have affirmed the reconveyance but remanded only for the chancellor to determine and account for any equity Barbara had in the property.
Analysis:
This decision reaffirms and extends the holding of Sebastian v. Floyd, solidifying Kentucky's strong stance against the forfeiture of a buyer's interest in real property under installment contracts. It clarifies that a vendor's lien arises by operation of law, making a seller a secured creditor even without express language in the deed. By mandating foreclosure as the exclusive remedy, the court ensures that these transactions are treated functionally like mortgages, thereby protecting the buyer's accumulated equity. This precedent limits the availability of equitable remedies like reconveyance when the statutory legal remedy of foreclosure is available, providing a predictable and uniform process for resolving defaults in seller-financed real estate sales.
