Looney v. Farmers Home Administration

The McCords (defendants) purchased property from the Looneys (plaintiffs) for $250,000, under a conditional land sales contract requiring the McCords to make annual payments of $23,280, including interest, as well as to pay taxes, insurance, and maintenance expenses. Thereafter, the McCords obtained a loan for $183,000 from Farmers Home Administration (the administration) (defendant). In order to secure the loan, the McCords granted the administration a mortgage subject to the sales contract. After making interest payments to the Looneys totaling $123,280, the McCords defaulted. At the time, the outstanding balance on the contract price was $249,360. The Looneys filed suit against the McCords and the administration, seeking forfeiture of the contract. The government sought leave to file a counterclaim for foreclosure of the mortgage, claiming that the property had appreciated in value to $455,000. The district court denied the government’s motion, concluding that, because the McCords still owed $249,360 on the base $250,000 purchase price, the McCords equity in the property totaled only $640, or 0.26 percent of the price. On this basis, the court found that forfeiture was proper, awarding the administration $640 and extinguishing the mortgage. The administration appealed, contending that foreclosure, rather than forfeiture, was the appropriate remedy.