Paris v. Green; Michigan Court Declares Deed A Mortgage (Again)

The Michigan Court of Appeals (in a 2005 case), citing to some pretty old cases (including two that over a century old), again ruled that a deed, given as security for a loan, is not an absolute conveyance; rather, it is to be treated as nothing more than a secured loan.

The differences between this case and the Michigan cases I posted on in the past, Moore v. Cycon Enterprises, Inc., (the subject of a January 2, 2007 post and also referred to in a December 17, 2006 post) and London v. Gregory (the subject of a January 3, 2007 post and also referred to in the December 17 post) is that this 2005 case did not involve a foreclosure rescue situation, nor did it involve a formal invocation of Michigan's equitable mortgage doctrine (the words "equitable mortgage" do not appear anywhere in the case).

Nevertheless, the appellate court's analysis was pretty much the same as it was in the other two cases, and like the other two cases, cites heavily to some pretty old Michigan case law (In my view, the significance of the old cases is that the Michigan law in this area, whether you call it the "equitable mortgage doctrine", or simply refer to the arrangement in question as a "deed (absolute in form) given as security for a loan", seems to be pretty well settled).

This case was the subject of a brief article captioned "Michigan Court Finds Deed is a Mortgage" (scroll down to the 3rd captioned article from top of page), on the electronic Mortgage Banking Newsletter from the Michigan law firm, Lipson, Neilson, Cole, Seltzer, & Garin, P.C.

What follows are some quotes from the case (citations omitted) demonstrating how the court identified the law to be applied, and how they applied it.

The court described Michigan law as follows:

• "It is a long-established rule that Michigan courts, when prompted by compelling evidence, will look beyond the face of a deed to resolve the question of whether the parties intended the deed as a transfer of ownership or as security for a loan."

• “The fair effect of the whole evidence, direct, circumstantial and presumptive, is to prove that the parties intended that between themselves the transaction should be an assignment [of the certificate of property purchase] as security for the valid existing debt . . . , and not an absolute sale . . . .”

• "The only question calling for serious consideration is whether the [homeowner] has sustained the burden of establishing that this warranty deed, on its face conveying the absolute title, was, between the parties, but a mortgage to secure a loan. It is well settled that such question is open to litigation, and the courts may so declare when the testimony impels to that conclusion. In passing upon the proof courts favor written evidence, rather than oral, but are required to consider together the writings, relations of the parties, surrounding facts and conditions generally, to arrive, if possible, at the real intent, understanding, and agreement of the contracting parties."

• "One factor in determining whether a transaction is a sale or mortgage is whether the “seller” retained possession of the property."

• "Another factor is the adequacy of consideration involved."

• “While inadequacy of consideration is not an infallible test, it is an indication that the parties did not consider the conveyance to be absolute, particularly where the bargaining positions of the parties are markedly unequal.”

• “Under Michigan law, it is well settled that the adverse financial condition of the grantor, coupled with the inadequacy of the purchase price for the property, is sufficient to establish a deed absolute on its face to be a mortgage.”

The appeals court then applied the foregoing statement of the law as follows:

• "There was an extreme disparity in the value of the real property—which was worth more than $40,000 in 1990—and the $15,000 the court found that plaintiff loaned to [homeowners]."

• "Plaintiff also acknowledged that [homeowners] paid the taxes and insurance on the house at all times."

• "The disparity in value between the consideration and the value of the property, [homeowners'] retention of possession, the lack of documentation about a sales agreement, plaintiff’s initial admission that the deed merely represented security for a loan, [homeowners'] payment of house taxes and insurance, and the unrebutted testimony that [homeowners] paid more than $22,000 to or on behalf of plaintiff all support the conclusion that the transaction was a mortgage and not a sale."

• "Because [homeowners] will retain title to the property, [homeowners] will prevail in this action and will be entitled to case evaluation sanctions after entry of the judgment in the trial court. MCR 2.403(O)(2)(b)." [re: appropriate award of attorneys fees to homeowners' legal counsel].

Case Law Citation:

Paris v. Green, No. 249740, Mi. App. Ct., 2005 Mich. App. LEXIS 90, January 20, 2005 (unpublished) (made available online courtesy of the Michigan Bar Association). Michigan equitable mortgage alpha