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when they were audited, John dealt with their examination. He
told them when to buy, sell, borrow against, and repair property.
At John's direction, money went from petitioners to him and back
again from him to them. But petitioners understood none of this.
From May 1986 until February 1988, when John was convicted
for falsifying documents, he was licensed by California to sell
realty. He involved petitioners in his real estate deals. At
John's instigation, they purchased a house located at 7786
Chancery Court, Citrus Heights, California (Chancery Court) from
William Paxton on December 23, 1986. They paid $67,000 for the
house, and Mr. Paxton financed $17,000 of the cost. The record
does not disclose how petitioners financed or otherwise obtained
the remaining $50,000.
On February 19, 1987, petitioners borrowed $50,000 from the
Jack Rice Revocable Trust (Jack Rice), using a mortgage on
Chancery Court as security, which Jack Rice subsequently
recorded. The note secured by the mortgage contained an
acceleration clause under which, if petitioners were to sell,
convey, or otherwise alienate Chancery Court, the loan would
become immediately due and payable at the option of the holder.
Despite this acceleration clause, John secured another loan using
Chancery Court as security, as described below.
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