- 30 -
transaction. The court also found that the economic substance of
the stock purchase agreement created indebtedness. To find that
the contract created indebtedness, the court relied on “(1) the
amount of the contractually specified liquidated damages, (2) the
extent to which [the limited partnership] assumed real economic
burdens of ownership before settlement, (3) [the limited
partnership’s] peripheral activities before settlement, and (4)
the absence of apparent motives for creating an option contract.”
Id. at 655.
Unlike Halle v. Commissioner, supra, we find that the terms
and the economic realities of the prior approval purchase
contracts indicate that these contracts were options. The
Sellers’ & Servicers’ Guide indicates that the prior approval
purchase contract offers an alternative to the immediate delivery
purchase program when an originator and the borrower have not
closed on a mortgage. By entering into an immediate delivery
purchase contract, an originator could receive a commitment from
petitioner without paying the 0.5-percent nonrefundable fee.
However, originators who participated in the prior approval
program chose to pay the commitment fee to protect themselves
from fluctuations in interest rates during the period when the
option was open and the uncertainty associated with the
possibility that the mortgages might not close within the
delivery period. Had originators been absolutely certain that
they could deliver the mortgages, they could have entered into an
Page: Previous 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 NextLast modified: May 25, 2011