Swenson v. Mills, 198 Ore. App. 236, 108 P.3d 77, (Or. Ct. App. 2005) Highlights

In a 2005 case, the Oregon Court of Appeals, in Swenson v. Mills, 198 Ore. App. 236, 108 P.3d 77, (Or. Ct. of App. 2005), invoked the "equitable mortgage" doctrine in a case involving a title transfer of realty from a property owner to an investor, coupled with a simultaneous execution of a "leaseback" agreement. The court refused to respect the form of the transaction as a true sale and, instead, looked to the substance of the transaction in reaching its determination that the transaction was nothing more than a secured loan.

Some of the points & observations made by the court regarding the state of Oregon's equitable mortgage doctrine, in the context of "a deed, absolute in form, given as security for a debt", follow:

• "There is a presumption that a deed absolute on its face is "what it purports to be unless and until proved otherwise by clear and convincing evidence.""

• "The same rule is applicable to a sale and leaseback transaction."

• "If, however, it appears that the parties' intent was to convey and receive the property as security for the fulfillment of an obligation, then the form of the instrument becomes immaterial and the true nature of the transaction may be shown by parol evidence."

• "That question is determined based on a consideration of the whole transaction, by "the mutual intention of the parties at the time the transaction was consummated.""

• "Factors that may be considered in determining the intent of the parties include:

(1) the situation of the parties including their business and social relationship, (2) price fixed in relation to the actual value of the property conveyed, (3) surrender of possession by grantor, (4) payment of taxes, (5) payment of rent, (6) liability by grantor to pay interest, (7) financial circumstances of the grantor, and (8) conduct of the parties before and after the transaction."

• "When a deed absolute in form is accompanied by an option to repurchase, the option does not of itself convert the transaction into a mortgage but weighs in favor of the existence of a mortgage."

In applying the above recited Oregon case law to the specific fact of this case, the Oregon court made the following observations:

• "[The buyer and the property owner both] testified that they intended to structure the transaction as an outright sale, and the trial court found them both to be credible. As we have noted, however, the parties' intent as to the structure of the transaction is not determinative if, despite its outward appearance, factors indicate that the transaction should have the effect of an equitable mortgage."

• "[T]hese are the factors that weigh in favor of our conclusion that the transaction was, in fact, a security agreement:

(1) "At the relevant time, [the property owners] were experiencing serious financial difficulty."

(2) "[The buyer and the property owner] were close personal friends, and [buyer] was strongly motivated to help [property owner] through the financial crisis and to help [property owner] succeed."

(3) "The purchase price for the subject property was only half the property's market value."

(4) "The general terms of the agreement were reached in a single telephone conversation between [buyer] and [property owner] and without the benefit of an appraisal."

(5) "The broker listing the property received no commission for the sale."

(6) "[Property owner] retained possession of the property and continued in operation and had an obligation under the lease agreement to pay taxes and make lease payments of $ 6,000 per month."

(7) "The lease amount was below the property's actual market lease value and was determined based on a 12 percent rate of return on [buyer's] investment."

(8) "The sale was conditioned on [property owner's] option to repurchase the property during the lease on terms favorable to [property owner], including a repurchase price the same as plaintiff's purchase price of $ 600,000, substantially below the property's market value."

(9) "The parties contemplated that [property owner] would continue to list the subject property for sale and that the proceeds of any sale in excess of $ 600,000 would be shared between [property owner] and [buyer]."

(Editor's Note: For ease of reading, citations to court precedents 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 look" at some points that were considered when the court reached its decision. If there is anything contained herein that is of any value to you, I urge you to obtain and read the entire case; link to the full text of the case is available by clicking below:

Swenson v. Mills, 198 Ore. App. 236, 108 P.3d 77 (Or. Ct. of App. 2005). Oregon equitable mortgage doctrine theta