- 8 -
1991. John, meanwhile, asserted ownership. He asked Sid to
return the property to him.
At first Sid refused to deed the property back to John.
Larry had not explained to Sid either the Westlake Agreement or
the buy-out arrangement, and furthermore Sid's attorney advised
him against deeding the property to John since both the I.R.S.
and the Sacramento Sheriff's Office were making inquiries. But
then John wrote Sid a letter on September 27, 1991, the pertinent
part of which provides:
Your Brother and I were involved in a 32 lot
subdivision. He was asked to sign a Recession Contract
eliminating him from the limited partnership. He
wanted some temporary collat[e]ral to guarantee his
purported, Westlake Venture capital and profit. He
agreed upon 7786 Chancery Court. However, because of
his "[e]stranged situation", with Patty Buchannon and
possible "palimony" problem, I refused to deed it to
him, so we agreed to deed it to you Sid. Sid, it's
time to deed it back." * * *
The letter further explains that John had made the mortgage
payments for 5 years. Shortly thereafter, on October 17, 1991,
Sid deeded the property to John. John's efforts, however, proved
futile. Jack Rice foreclosed on Chancery Court and sold it for
$78,000 on November 21, 1991.
John's desire to avoid the acceleration clause in the Jack
Rice mortgage produced evidence that petitioners continued to be
owners of Chancery Court after they executed the Exchange
Agreement. Jack Rice issued a Form 1098 listing petitioner
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