South Dakota Supremes Say "No Sale" In Equitable Mortgage Cases

The South Dakota Supreme Court recently held that a title transfer of realty from a property owner to an investor, coupled with a simultaneous execution of a "buy back" agreement constituted an "equitable mortgage", thereby refusing to respect the form of the transaction as a true sale and, instead, looking to the substance of the transaction in reaching its determination.

A few of the points made by the high court in Myers v. Eich that I found notable were:

• "A purported absolute conveyance may be recharacterized as a mortgage, depending on the surrounding circumstances and the parties' intent."
  
• "whether a deed, absolute in form, is in fact a mortgage, the question whether the price is adequate is entitled to great weight"
  
• "[w]here there is a deed, and contract to re-convey, and oral evidence has been introduced tending to show that the transaction was one of security, and leaving upon the mind a well-founded doubt as to the nature of the transaction, then courts of equity incline to construe the transaction as a mortgage."
  
• "The fact that the conveyance and contract for deed were executed on the same day creates a strong doubt on whether this transaction was intended to be a sale."
  
• "retaining possession of transferred property is "inconsistent with theory of absolute conveyance""
  
• "the [properties involved] were valued at approximately $ 200,000. It defies logic to conclude that the Eichs sold both properties for $ 125,000, and then also agreed to pay an additional $ 10,000 as a fee. Pittwood, 251 P at 286 ("where the disparity between the amount of the indebtedness and the value of the property is so great as to necessarily lead to the conclusion that the deed was intended as security, the courts will, without hesitation, so declare")
  
• "It has long ago been recognized in South Dakota that "[p]arties seeking to take an undue advantage of mortgagors situated as the plaintiff was in this case almost invariably seek to cover up the transaction by inducing the party to whom the loan was really made to take a lease of the property; hence the mere fact of leasing should have but little weight with a court of equity, which seeks to discover the real transaction.""

• "The fact that the conveyance and contract for deed were executed on the same day creates a strong doubt on whether this transaction was intended to be a sale."

• "When an equitable mortgage exists, "nothing short of the actual payment of the debt, or an express release will operate as a discharge of the mortgage."This right cannot be restrained or barred except by methods prescribed in law. A mortgagor's right to redeem is inseparable to a mortgage relationship. A release "will not be inferred from equivocal circumstances and loose expressions.""

• The force of the doctrine of equitable mortgage cannot be avoided in this case merely because a lease agreement existed or the 2003 warranty deeds were executed by the Eichs (one "cannot by changing the form of the transaction cause a forfeiture of the [party's] right of redemption"); ("[t]he relation of a mortgagor and mortgagee continued to exist notwithstanding the various changes in the legal title"); ("New York has long prevented parties to a real estate transaction from avoiding the protections due a mortgagor by disguising the nature of the transaction").

(Editor's Note: For ease of reading, citations and some internal quotations have been omitted.)

The foregoing points are presented by The Home Equity Theft Reporter solely to give the reader a "quick peek" of what was involved in this case. If there is anything contained herein that is of any value to you, I urge you to obtain and read the entire case. South Dakota equitable mortgage kappa