Equitable Mortgage Cases in Massachusetts

I recently came across a Massachusetts case (decided in 2004) dealing with, among other issues, the equitable mortgage issue in the context of a bitterly contested divorce proceeding. The case involved a title transfer from one party to another where, ultimately, the transfer was held to be an equitable mortgage. The context was significantly different than the context involving a foreclosure rescue sale with a simultaneously executed agreement to reconvey. Nevertheless, this case contains language that indicates to me that there probably are Massachusetts decisions (probably old cases) in the case law that can be used in developing a case in attacking the "sale leaseback with reconveyance" arrangements commonly used in foreclosure rescue situations (I see no reason why Massachusetts would be any different than any of the other states reported on to date in connection with this issue).

In applying the equitable mortgage doctrine, the Massachusetts court observed that:

• "When a deed (absolute on its face) is given at the time a debt is incurred for the purpose of securing payment of the debt, "a court of equity will treat the deed according to its true nature as a mortgage." Fales v. Glass, 9 Mass. App. Ct. 570, 573, 402 N.E.2d 1100 (1980). See Allen v. Mutual Acceptance Corp., 350 Mass. 553, 554, 215 N.E.2d 784 (1966) ("Whether a deed absolute in form is an equitable mortgage depends upon the intention of the parties as shown in the circumstances of its negotiation and execution"); Restatement (Third) of Property (Mortgages) § 3.2(b) (1997)."

• "Under the express terms of the Levensons' separation agreement, the deeds in the present case were intended to serve as additional (or alternative) security for Levenson's obligations under an anticipated loan transaction. Consistent with the provisions of this agreement, when Levenson borrowed funds from Mr. Feuer as trustee of the MB Mortgage Trust, the deeds were placed in escrow as part of the initial loan transaction. The defendants do not argue, and there is nothing in the terms of the separation agreement or the loan documents to suggest, that a conditional sale of the mortgaged property was intended. In these circumstances, delivery of the deeds constituted the delivery of additional instruments of security for the underlying debt. See Carey v. Rawson, 8 Mass. 159, 160 (1811); Woodward v. Pickett, 74 Mass. 617, 8 Gray 617, 618 (1857); Steel v. Steel, 86 Mass. 417, 4 Allen 417, 419-420 (1862)."

• "To the extent that language in the agreement suggests the parties intended to circumvent laws governing foreclosure that otherwise would govern the manner in which title to the properties could be transferred, the language is void as against public policy and we give it no effect. "Though it be ever so strongly expressed that the estate shall be absolute if the money is not paid at the day fixed, such stipulation would be void. It does not depend upon the intent of the parties; because it is an intent contrary to the rules of law, which the law will not carry into effect." Bayley v. Bailey, 71 Mass. 505, 5 Gray 505, 510 (1855). See, e.g., First Ill. Natl. Bank v. Hans, 143 Ill. App. 3d 1033, 1038, 493 N.E.2d 1171, 98 Ill. Dec. 150 (1986) ("parties cannot by an express stipulation in the mortgage transform the instrument into an outright conveyance upon default, [thereby] depriving the mortgagor of his redemptive rights")."

Source:

Levenson v. Feuer, 60 Mass. App. Ct. 428; 803 N.E.2d 341; (Mass. App. Ct. 2004 ) (made available online by Findlaw.com). Massachusetts equitable mortgage saturn