## Facts

- In February 1970, Delfino and Eleanor Martinez (sellers) sold their home to their son, Carlos Martinez, and his wife, Sennie Martinez (buyers), under a real estate contract.
- The contract required the buyers to assume the existing mortgage on the property held by Southwest Savings and Loan Association (Southwest).
- When the sellers handed the buyers a warranty deed, the sellers orally instructed the buyers to take the deed to Southwest to be held in escrow until the mortgage was paid in full.
- No written escrow agreement was executed, and the deed and contract did not set out escrow terms.
- Before placing the deed with Southwest, one of the buyers recorded the deed.
- The buyers made the mortgage payments for years, but by late 1980 they fell behind; payments were made through November 1980.
- During marital problems, Carlos told Sennie he would no longer make mortgage payments and that she would be responsible for them.
- In December 1980, a Southwest representative told Sennie that if the loan remained in default for 90 days, Southwest would take legal action to foreclose.
- Sennie later made the December 1980 payment on February 9, 1981, but the January and February 1981 payments were not made.
- Southwest sent a delinquency/foreclosure notice and deadline letter to Carlos; Sennie did not receive that letter until April 11, 1981.
- On March 27, 1981, the sellers cured the mortgage default with Southwest and began making the monthly mortgage payments themselves.
- The real estate contract contained a clause allowing the sellers, after curing a default that jeopardized the mortgage, to require the buyers to reconvey the property back to the sellers at the sellers’ option.
- The sellers’ attorney sent Sennie a letter stating the sellers were exercising their option to require reconveyance, asserting the sellers were the lawful owners, and demanding that Sennie vacate immediately.
- Carlos executed a deed reconveying his interest, but Sennie refused.
- The sellers sued to recover title to and possession of the property; the trial court found that delivery of the deed was conditioned on full satisfaction of the mortgage and ruled for the sellers.

## Issues

1. Whether the warranty deed was delivered unconditionally in 1970, causing the real estate contract (including its default/reconveyance clause) to merge into the deed.
2. Whether the sellers could enforce the contract’s reconveyance/forfeiture option without first giving the buyer notice and a reasonable time to cure the default.
3. Whether the sellers were entitled to attorney’s fees.

## Decision

- The Supreme Court of New Mexico affirmed the trial court’s finding that delivery of the deed was conditional (for transmission to the mortgagee to hold in escrow until the mortgage was paid), so the contract did not merge into the deed and the contract’s default/reconveyance remedy remained available.
- The court reversed the forfeiture/reconveyance relief as applied because the sellers’ notice did not give Sennie a reasonable time to cure; an option to declare forfeiture or require reconveyance is not self-executing and requires notice and time to perform before forfeiture can be effected.
- The court reversed the attorney’s fee award because fees may be shifted only when authorized by statute, rule, contract, or another recognized basis.
- Disposition: affirmed in part and reversed in part, with further proceedings required consistent with the notice-and-opportunity-to-cure rule and the rule on attorney’s fees.

## Legal Principles

- Delivery of a deed depends on intent to transfer title; extrinsic evidence may be used to show that a deed handed to a grantee was intended for escrow and not to take effect immediately.
- Recording by the grantee does not create an irrebuttable presumption of unconditional delivery when evidence supports a conditional delivery arrangement.
- A land-sale contract clause giving the seller an option to declare forfeiture or require reconveyance upon default is not self-executing; the seller must first give notice fixing a reasonable time to cure, and forfeiture may occur only if the buyer fails to perform within that time.
- A notice that purports to make forfeiture effective immediately, rather than stating that forfeiture will occur after a stated cure period, is insufficient.
- Attorney’s fees are not recoverable by the prevailing party absent statutory, contractual, or other recognized authority.

## Conclusion

The court held that the deed was conditionally delivered for escrow and therefore did not merge the real estate contract into the deed, but it also held that the sellers could not immediately enforce a forfeiture-type reconveyance option without first giving the buyer notice and a reasonable time to cure; the attorney’s fee award was reversed for lack of an authorizing basis.


Martinez v. Martinez, 678 P.2d 1163 (1984)