“Vapor Money” Theory to Avoid Repayment of Real Property Loan Rejected by Utah Court of Appeals

Debtors attempting to avoid repayment of a loan secured with by a Deed of Trust against real property or to invalidate a Trustee’s Sale under the Deed of Trust will find no succor in Utah by claiming that a loan not backed by “lawful money” of the United States is unenforceable.  In Brook v. Woodall, 2011 UT App 151, the Utah Court of Appeals held that such a claim has no basis in law.

Michael Creps Brook (“Brook”) executed a Deed of Trust in favor of Lehman Brothers Bank, FSB (“Lehman Brothers”) against property owned by  him in Santaquin, Utah.  The property was subsequently sold at Trustee’s sale by James Woodall, the Trustee under the Deed of Trust (“Woodall”).

Brook and Robert George Wray (Brook’s purported susequently “duly appointed trustee” on a deed of trust) filed a complaint against Woodall, Lehman Brothers and others claiming with “strange and vague allegations” that Lehman Brothers issued Brook an invalid loan.  Brook and Wray alleged that the loan was backed by credit and not “lawful money,” a theory known as a “vapor money” or “no money lent” theory.  Because the loan was invalid, Brook and Wray asserted, Brook had no obligation to repay the loan, and the sale of the property by Woodall was, accordingly, illegal.

The District Court dismissed the complaint.  Brook and Wray appealed.  The Utah Court of Appeals, on its own Motion for Summary Disposition, affirmed the District Court’s dismissal.  Citing prior federal court case law holding the theory to be a “patently ludicrous argument,” the Court of Appeals noted that the “vapor money” theory has been rejected by courts throughout the country for over twenty years and held that the District Court correctly dismissed the complaint for failure to state a claim upon which relief could be granted.

A variation on the “vapor money” theory is the “paper money” theory which alleges bank loans to be invalid because the loans are evidenced by credit or paper money not backed by gold.


About kathyafdavis

I have been practicing law in Utah since 1983. I have expertise in the areas of real property, contracts, business law, secured transactions, bankruptcy (creditor representation).
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