Equitable Mortgage Defense In Homeowner-Tenant Evictions - Part 8

This is Part 8 of Equitable Mortgage Defense. Click here to see all posts on Equitable Mortgage Defense In Homeowner-Tenant Evictions.

In this installment, coverage of the equitable mortgage doctrine, generally, and its application in the context of lawsuits for ejectment/eviction, specifically, includes cases from the State of Washington.

Puget Sound Inv. Group, Inc. v. Bridges
92 Wn. App. 523, 963 P.2d 944
(1998)

This case is really not an equitable mortgage case. It deals, however, with the inappropriateness of bringing an action for unlawful detainer by a purchaser of real property at an IRS tax foreclosure (who received a quit claim deed) to remove the prior owner who remained in possession of said property ("tenant" holding under color of title) without first establishing the superiority of its title over that of the prior owner. Since the case involves an action for unlawful detainer involving two parties each having competing claims to title over the same property, I chose to include a brief discussion of the case here. The facts of this case are somewhat analogous to the typical foreclosure rescue situation involving a sale-leaseback with a buyback option, at least with respect to the competing ownership claims of the foreclosure rescue operator, as the record titleholder, and the financially strapped homeowner, who asserts title to the property under an equitable mortgage claim.

In affirming the lower court in ruling that it was not proper for an IRS tax sale purchaser of real estate to obtain possession from the prior owner, who remained in possession after the sale, through an action for unlawful detainer, the Washington appeals court made this observation of what unlawful detainer actions are all about:

• "The unlawful detainer chapter, RCW 59.12, provides a summary proceeding for obtaining possession of real property, and gives the proceeding priority over other civil cases. The court's jurisdiction in unlawful detainer proceedings is limited to the right to possession of real property and a few related issues such as damages and rent due. Unlawful detainer actions offer a plaintiff the advantage of speedy relief, but do not provide a forum for litigating claims to title."

(citations omitted)

The court ultimately ruled that, because the person in possession claimed ownership under color of title based on his warranty deed, the tax sale purchaser must establish superior title over the prior owner before it may proceed with an unlawful detainer action. The court stated that "[t]he appropriate procedure is an action in ejectment and quiet title under RCW 7.28."

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Where a financially strapped homeowner, who after signing away title to his/her home to a foreclosure rescue operator in exchange for a leaseback and option to buy (or a repurchase agreement under a contract for deed), finds him/herself being evicted in an unlawful detainer action, the homeowner's assertion of a claim of equitable mortgage should, in my view, put him/her in a similar position with respect to the color of title issue that would require an action for quiet title and ejectment. While Puget Sound Inv. Group, Inc. v. Bridges doesn't deal with an equitable mortgage situation, it seems that both a homeowner's ownership claim under the equitable mortgage doctrine and the foreclosure rescue operator's ownership claim as record owner are the types of competing claims of ownership that make the summary procedures of unlawful detainer unavailable to a foreclosure rescue operator, similar to the result in Puget Sound.

Puget Sound Inv. Group, Inc. v. Bridges, 92 Wn. App. 523, 963 P.2d 944 (1998)

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While I have already briefly written about the following cases in a prior post, see Equitable Mortgage Doctrine In Washington State, I will include them again here, inasmuch as they deal with actions by a "purported" owner of property to recover possession thereof from one in possession who asserts title to same under an equitable mortgage claim.

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Mears v. Strobach, 12 Wash. 61; 40 P. 621 (Wa. 1895) (involves an action to recover possession of land.)

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The "tenant" being sued for eviction successfully made equitable mortgage claim against purported "owner"; in addition, notwithstanding testimony to the effect that the plaintiffs refused to make a loan and would only consent to advance the money upon an absolute conveyance to them of the property, "[the] testimony, interpreted in the light of the instruments actually executed, and of the other facts sufficiently proven by the evidence, fails to satisfy us that the transaction was not, after all, substantially one of lending and borrowing." The court further stated:

• "In our opinion, there was no intention on the part of either of the parties to do more than on the one part to secure the loan of the money and on the other to loan it and get proper security for re-payment with interest. This being so, the bare fact that they refused to loan the money and take a mortgage only tends to show that they thought they could evade the law, requiring the mortgage to be foreclosed before they could get possession of the property, by taking a deed, as they did, and giving a lease and an option to purchase to the grantors named in the deed."

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Snyder v. Parker, 19 Wash. 276, 53 P. 59 (Wa. 1898) (involves an action to recover possession of land. The "tenant" being sued for eviction successfully made equitable mortgage claim against purported "owner"; the deed held by the "owner" was given as security for a debt, and was not an absolute conveyance and, accordingly did not pass title. In ruling, the Washington high court remarked, "It is an elementary principle that in ejectment the plaintiff must recover on the strength of his own title. The instrument in suit having been found a mortgage, appellant should not recover possession under its terms."

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Pearson v. Gray, 90 Wn. App. 911, 954 P.2d 343 (Wa. App. Ct. 1998) One claiming ownership under equitable mortgage doctrine has standing to bring quiet title action; in addition, the trial court's order in favor of legal title holder in unlawful detainer action and writ of restitution reversed and remanded until a finding of ownership in the quiet title action is reached. The court observed, "The purpose of an action for unlawful detainer is to determine who has the right of possession. [...] [A]s issues of ownership in the quiet title action still remain unresolved, the finding in the unlawful detainer action and the grant of the writ of restitution are premature."

Go here for other posts on the equitable mortgage doctrine in Washington State. Washington State equitable mortgage whale emdefense