The Debt Recovery Act left a far-reaching legacy when it was established in the United States. Many state legislatures and courts incorporated it into newly created state laws. The expansion of these states reflects two main concerns: First, after the states gained independence, the legislature saw itself as objects of competing credit, eager to show outside investors that they would advance the interests of creditors and investors.
Second, state judges and legislators were influenced by a dominant ideological stance of the founding era, known as the "commercial republicanism" view, which emphasized the importance of expanding commerce to create an American elite.
According to this view, the new American republican order stood in stark contrast to the English aristocracy based on landownership and inheritance. Commercial Republicans defended the Debt Recovery Act, which made land available to settle debts and simplified legal procedures, arguing that placing land wealth under commercial risk would prevent the establishment of a domestic aristocracy.
Most state legislatures affirmed by statute that the relief system that existed before the American Revolution would continue without substantial modification. In fact, earlier state legislation made it clearer than similar colonial legislation that its purpose was to signal to creditors that the state's real estate laws offered debtors little opportunity to protect assets from creditor claims.
In the 80s of the 18th century, the abolition of immovable property restrictions was another means by which the state legislature tried to improve the credit conditions extended to the newly independent states. By abolishing the real estate limit, the state legislature eliminated the primary mechanism by which landowners protected their real estate assets from creditor claims during the Debt Recovery Act era.
However, the enactment of the NSW Act has raised litigation questions about how courts interpret the new legal language. Under the state statutes that replace the Debt Recovery Act, the most frequently contentious issues are: the first procedural issue relates to whether the heir's privileges should be extended to make them parties to legal proceedings in land succession matters; Second, the status of the mortgagee's redemption interest under NSW law.
The South Carolina Constitutional Court of Appeals ruled in 1803 that the Debt Recovery Act remained in effect in the state, emphasizing that the Act requires land to be seized and sold "in the same manner as personal property." ”
According to the Court's view, "the Act cannot be interpreted as making any distinction between land and personal property, but must be treated as equally liable for the satisfaction of the debt and used as assets for this purpose in the hands of the personal representative of the debtor." The court noted that the Recovery Act "was clearly made for the benefit of creditors." ”
The second issue under NSW legislation concerns whether mortgagors retain traditional equitable redemption interests after a legal judgment. By 1820, when the court sold immovable property at auction, it did not recognize any right of redemption and did not require the amount obtained through the sale to reach a minimum amount of appraised value.
Waters v. Stewart is a landmark case in this area. The facts in the Waters case are similar to those in the De Oulfi case. Appellant Thomas Waters and his sister Sarah were transferees of seventy acres of land under their stepfather's will, which was subject to a mortgage. They filed a lawsuit in court hoping to redeem the land by paying the remaining mortgage.
However, during the estate settlement, as directed by the court, the right to foreclosure has been sold to pay off their stepfather's debts. In the words of the lower court, the question is "whether the mortgage interest in the land can be sold at the time of enforcement." "If the court does not have the power to sell the redemption interest, then the sale will be null and void and Waters and his sister will inherit the land and be able to redeem the land from the mortgagee."
To decide the case, the court would need to interpret the language of the statute that replaced the Debt Recovery Act of 1787 in New York State. The statute provides that "the land, estates and immovable property of each debtor shall and are hereby deemed to be enforceable property for sale." ”
The question is whether the legislator intended to include redemption interests in the term "immovable property", or whether the statute envisages a regime more akin to English practice, in which seizure of land can only take place after a formal discharge proceeding in court.
The lower court sided with Stewart, the court-appointed purchaser of the redemption interest. According to the lower court, the Recovery Act "in its operation, in the interests of creditors, has completely converted immovable property into personal property." ”
The court dismissively described the traditional distinction made between immovable and movable property, calling it "the concern of landowners to maintain land title within the family, which is combined with the nature of the British government." ”
The Court noted, however, that "the conflict between land and commercial interests was only partial, limited to Great Britain and not extended to its colonies... These obstacles did not exist to regulations that made it easier to collect colonial debts. ”
The court then noted that since the enactment of the Debt Recovery Act, "the sale of redemption interests has been carried out without interruption." ”
Before the judiciary of the New York State Supreme Court, Thomas and Sarah Waters argued that redemption interests are only legally valid in the Court of Chancery—that English courts do not recognize equitable redemption interests. They argued that only the Court of Equity could authorize the sale of those interests or the procedure of discharge, unless expressly approved by the legislature, such as expressly including "equitable interests" as one of the interests to be sold in an enforcement sale.
However, the court upheld the lower court's decision. On matters of law, Judge Kent's opinion adopted the arguments of Stewart's lawyers, Alexander Hamilton and Josiah Hoffman, who bought the land in the execution sale.
The court held that because mortgage law had evolved to treat mortgages only as a lien on the land and not as an all-right to the land, the mortgagor should be treated as having a legal interest and subject to the remedies available to the court.
Judge Kent's opinion reasoned that such an interest should therefore be treated as "immovable property" under the statutes of the State of New York. Kent noted that the statute "uses the same broad wording as the Debt Recovery Act" and that "I don't think there is any doubt that fair redemption interests will be included." ”
