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security interests in the Ranch. Moncor Bank did not pay to
petitioners, nor to the former owners, the $240,000 balance of
the Bank loan. Rather, the $240,000 balance of the Bank loan was
reflected on Moncor Bank's records as a substitution of
petitioners' stated debt to Moncor Bank for the debt of the
former owners of the Ranch to Moncor Bank.
Moncor Bank agreed to allow petitioners to repay the
$1 million stated principal amount of the Bank loan through
petitioners' transfer or assignment to Moncor Bank of the written
installment contracts entered into by purchasers of the cabin
lots. Upon each cabin lot sale, the written contract for sale of
the lot would be assigned and physically transferred by
petitioners to Moncor Bank, and petitioners' stated principal
debt obligation to Moncor Bank on the Bank loan would be credited
with an amount equal to 95 percent of the stated contract price
regardless of actual payments received or to be received by
Moncor Bank from purchasers of the cabin lots. Upon each sale of
a cabin lot, Moncor Bank received a security interest in each
cabin lot in the event the purchaser defaulted on the installment
payment obligations agreed to in the purchase of the cabin lot.
Between September 1, 1983, and August 30, 1985, petitioner
sold 19 cabin lots and assigned all of the cabin lot sales
contracts to Moncor Bank. Moncor Bank credited 95 percent of the
total stated contract price reflected on the cabin lot sales
contracts that were assigned to it against the $1 million stated
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Last modified: May 25, 2011