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7. If the daughter obtained sound advice relating to her rights, she was told that
The son and the niece wanted all three parties, including the daughter, to each contribute one-third of the amount needed to pay the mortgage installments. The daughter objected, contending that the widow should pay all of these amounts out of the profits she had made in operation of the farm. When foreclosure of the mortgage seemed imminent, the daughter sought legal advice.
At the time of the decedent's death, there existed a mortgage on Blueacre that the decedent had given 10 years earlier to secure a loan for the purchase of the farm. At his death, there remained $40,000 in unpaid principal, payable in installments of $4,000 per year for the next 10 years. In addition, there was interest due at the rate of 10% per annum, payable annually with the principal installment. The widow took possession and, out of a gross income of $50,000 per year, realized $25,000 net income after paying all expenses and charges except the principal installment and interest due on the mortgage.
A decedent owned in fee simple Blueacre, a farm of 300 acres. He died and by will, duly admitted to probate, devised Blueacre to his surviving widow for life with remainder in fee simple to three individuals: his niece, his daughter, and his son. All three individuals survived the decedent.
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D is correct. Although the widow's duty not to commit permissive waste requires her to pay interest on the mortgage, she has no obligation to pay the principal. The daughter cannot be held liable for the widow's failure to pay the interest, or for the collective failure of the holders of the future interest to make the principal payments. The daughter does, however, risk losing her share of the remainder in Blueacre if the mortgage is foreclosed on the property.
Be careful of any answer with the word «only» as such answers are almost always unduly restrictive.
A is incorrect. First, because it is not the «only» remedy; second, because partition would be the remedy of last resort on these facts since the land is profitable. Life estate holders (life tenants) have a duty not to allow voluntary or permissive waste with regard to the property during their life tenancy. Voluntary waste is comprised of an affirmative act that reduces the value of (or otherwise harms) the property, such as cutting down and selling all of the trees on the property. Permissive waste is a failure to perform obligations related to the land to keep the property in good repair or maintain its value. A failure to make repairs to buildings on the property, failure to pay taxes on the property as they come due, or failure to pay the interest on the mortgage on the property all constitute permissive waste. In this case, as the life tenant, the widow has a duty not to sit idly by while permissive waste occurs.
In an action at law, the widow could be sued for breaching her duty in allowing permissive waste; damages for unpaid interest could be recovered from the widow if the daughter pays the mortgage, because the land itself is profitable. The court could appoint a receiver to collect all of the income from the property and to pay the taxes and mortgage on behalf of the widow before releasing any remaining proceeds to the widow. The daughter could also demand contribution from the niece and the brother for their share of the principal she paid in paying the full mortgage payment.
Partition in kind (dividing the land itself) or by sale (selling the land and apportioning the proceeds to the widow and the others according to their respective interests) are only suitable remedies when damages are insufficient. If the land in this case was not profitable, it might be impossible for the widow to pay the carrying costs to remain living there, in which case partition might be had.
B is incorrect. Because the widow is only liable for the interest on the mortgage, she cannot be compelled to pay the principal (a mortgage payment consists of principal and interest). Interest is the carrying cost owed by the life tenant so as not to disadvantage the remaindermen. Even though the land is profitable, she has no obligation to pay the principal owed on the mortgage as it becomes due. Any payment of principal reduces debt remaining on the mortgage and thus benefits the remaindermen (not the life tenant). Although foreclosure of the mortgage would certainly harm the widow in this case, she is not required to pay the principal, because this is the obligation of the remaindermen doing so would reduce the niece, daughter and son's debt on the property.
C is incorrect. A life tenant enjoys only the present possessory interest in the land. The remainder includes the future interest which includes the potential to convey the land unencumbered. Any increase in the principal paid reduces debt owed and thus benefits the remaindermen because the amount left to pay off the remaining mortgage debt is reduced. Notwithstanding the benefit of paying their share of the mortgage payments to ensure the mortgage does not fall into arrears, remaindermen have no legal obligation to do so. It is worth noting that a remainderman is not entitled to bid on the property in a foreclosure sale.