Practice Essay #5 Audrey is an inveterate gambler and so is always in need of funds to finance her habit. One day, she borrows money from Sophie (at a usurious rate). As part of the loan, Audrey gives Sophie a deed of trust on Audrey's ranch, called Blackacre. Sophie properly records. Unfortunately, that money is not enough so Audrey takes out a second loan to finance yet more gambling, this time from Calvin. She again gives out a deed of trust on Blackacre to secure the loan (to Calvin, this time). Calvin's deed of trust contains a due on transfer clause and is properly recorded. Predictably, Audrey's money woes continue, and she eventually loses Blackacre in a card game with Henry. Henry is a fabulous gambler, has a habit of winning others' expensive possession in games of chance, and has long had his eye on Blackacre. Henry never records. Unfortunately, he is as unsteady a property custodian as Audrey is a gambler, and he never makes any payments to Sophie or Calvin. Because of this, within a month of the transfer from Audrey to Henry, Sophie and Calvin move to foreclosure, with Calvin claiming both default in payment and default due to the transfer.

1. Who has priority to the property?

2. Assume that Blackacre is Audrey's homestead. Does this change your answer?

3. Assume that Sophie forecloses first. She is owed $100,000. She is the purchaser at the foreclosure sale, placing a credit bid of $75,000. Blackacre is worth $90,000 at the time of the foreclosure sale. Is a credit bid acceptable in this situation? Can Sophie get a deficiency judgment against Audrey? If so, for what amount? What if Blackacre were worth $105,000 (and the winning bid was still $75,000) - would Sophie be able to get a deficiency judgment then?