Saturday, January 27, 2007

Unwitting Title Transfers; Foreclosure Rescue Tactics - Table Of Posts

Foreclosure Rescue Tactics: An Outline (Saturday, January 27, 2007)

West Palm Beach Attorney Representing "A Dozen" Foreclosure Rescue Victims (Thursday, January 25, 2007)

Northern California Woman's Unwitting Sale Of Home Leads To Lawsuit (Saturday, January 20, 2007)

Southern California Woman Alleged Victim Of Home Theft, Mortgage Broker Arrested (Saturday, January 20, 2007)

Baltimore Woman Unwittingly Signs Over Home Title, Gets It Back After Fraud Investigation (Tuesday, January 16, 2007)

More Potential Victims Come Forward In N. Cal. Home Equity Theft Scam (Tuesday, January 02, 2007)

Minnesota Woman Signs Away Title In Refinancing Scheme (Monday, January 01, 2007)

Long Island Couple Lose Home, "Skimmer" Convicted (Saturday, December 30, 2006)

Two South Florida Homeowners Targeted By "Home Rescue" Companies (Friday, December 29, 2006)

NJ Couple Sign Away Home To Home "Rescuer" (Thursday, December 28, 2006)

Arizona AG Files Charges Against Foreclosure Rescuer (Wednesday, December 27, 2006)

Arizona AG Alleges Deception, Settles With Foreclosure Rescue Operator (Monday, December 25, 2006)

Court Date Postponed for Man Accused of Victimizing Tracy Couple (Wednesday, December 20, 2006)

Wisconsin Homeowner Claims Deception In "Foreclosure Rescue" Transaction (Monday, December 18, 2006)

Assistance Available For Attorneys Representing Scam Victims (Sunday, December 17, 2006)

FBI Arrest Two For Allegedly Robbing Dozens Of Their Home Equity (Wednesday, December 13, 2006)

Elderly California Couple Allege $485,000 "Home Theft" (Sunday, December 10, 2006)

Colorado AG Obtains $1.1 Million Judgment Against Foreclosure Rescue Operator (Thursday, December 07, 2006)

California Prosecutors Add 26 Charges Against Alleged House Swindling Trio (Wednesday, December 06, 2006)

Maryland Woman Signs Over Home For $7,000 To "Rescuer" (Monday, December 04, 2006)

Virginia Homeowner Unknowingly Deeds $230,000 Home To Foreclosure Rescuer For $16,000 (Monday, December 04, 2006)

Washington State Man Suing Company On "Lease-Buyback" Foreclosure Rescue Deal (Saturday, December 02, 2006)

Chicago Couple Unwittingly Deeds Home to "Foreclosure Rescuer" (Friday, December 01, 2006)

Feds Charge 2 Lawyers With Stripping Clients' Home Equity (Monday, November 27, 2006)

Michigan Man Charged with Bilking Senior's Home Equity (Saturday, November 25, 2006)

Maryland Attorney General to Review Criminal Complaint Against State Legislator For "Foreclosure Rescue" Activities (Saturday, November 25, 2006)

DREAMS FORECLOSED: The Rampant Theft of Americans’ Homes Through Equity-stripping Foreclosure 'Rescue' Scams (Saturday, November 25, 2006)

Rhode Island Attorney General Settles Suit With 'Rescue' Company; Judge Orders Return of Homes, Operations Shut Down (Friday, November 24, 2006)

Federal Charges Against Eight; 100+ S. Cal. Homeowners Victimized in $12 Million "Rescue" Scam (Friday, November 24, 2006)

Maryland State Legislator Sued For Alleged "Foreclosure Rescue" Scam; Police Investigation Ongoing (Friday, November 24, 2006)

Texas Retiree Falls Victim to "Foreclosure Rescue" Scam (Thursday, November 23, 2006)

Links From Around The Country (Tuesday, November 21, 2006)

Deed Theft / Title Conversion / Signing Over Your Deed (Monday, November 20, 2006)

FBI - Table Of Posts


Predatory Mortgage Servicing - Table Of Posts

Usury & Disguised Usurious Loans - Table of Posts


In re Litwiller; Iowa Bankruptcy Court Calls Conditional Sale Contract An Equitable Mortgage

A Federal Bankruptcy Court in Iowa ruled last month that the equitable mortgage doctrine was applicable to a somewhat complicated real estate transaction between a "financially strapped" farmer and an investor involving a contract of sale coupled with a simultaneously executed lease agreement, the subject matter of which was an operating farm owned by the farmer. Accordingly, the court disrgarded the form of the transcaction as portrayed by the executed documents and called the entire transaction a mortgage.

While this case may not constitute binding authority on anyone other than the parties in the case, the Iowa Supreme Court cases that this court based its decision on arguably do constitute such authority (at least in Iowa).

This case is pretty "fact heavy" and involves contract terms that are unique to the farming business. A very basic, skeleton outline of the transaction follows:

1) A financially strapped farmer ("farmer") was indebted to a local individual ("investor") who, apparently, was also in the farming business.

2) The two entered into a conditional contract of sale for the operating farm, which did not require the investor, as purchaser, to pay any financial consideration upon signing the contract.

3) The contract contained a clause whereby the farmer, as seller, could cancel the contract upon complying with certain conditions, among which was the repayment of the pre existing debt owed to the investor and payment of other "items" listed in the contract that the investor ultimately was not able to adequately "identify" or "explain" to the court.

4) Simultaneously with the execution of this contract, the parties entered into a lease agreement whereby the farmer, as owner and landlord, turned over possession of the farm to the investor, as tenant-lessee.

5) The lease gave the investor credit for "prepaid rent" in the amount of the existing debts and other items that the farmer purportedly owed him.

6) Apparently, there was no provison for how the financially strapped farmer was going to make the payments on an existing bank mortgage because, within six months of this tranaction, the bank commenced foreclosure proceedings, which ultimately resulted in the bank being the successful bidder at a sheriff's sale of the farm (the investor didn't pay any rent during this period, other than the prepaid rent credit, above).

7) Within four months after the sale, the investor paid the Bank money in exchange for an assignment of the sheriff's certificate of purchase.

8) After the foreclosure redemption period expired, the investor received a sheriff's deed to the property.

Bankruptcy Trustee Seeks To Invoke The Equitable Mortgage Doctrine

Interestingly in this case, it wasn't the financially strapped farmer who sought the application of the equitable mortgage doctrine. It was the bankruptcy trustee who sought it. As best as I can tell from the case, there where creditors of the farmer's bankruptcy estate who, put bluntly, stood to get screwed out of their money if the "artful" transaction structuring and maneuvering by the investor was allowed to stand.

The Iowa Equitable Mortgage Doctrine

The bankruptcy judge made the following statements in identifying (or describing) the equitable mortgage doctrine as it is applied in Iowa:

"A transaction involving the transfer of real property may be deemed a mortgage if it is shown by clear and convincing evidence that the instrument was intended as security for debt."

Steckelberg v. Randolph, 404 N.W.2d 144, 148 (Iowa 1987); Greene v. Bride & Son Construction Co., 252 Iowa 220, 226-27, 106 N.W.2d 603, 607-08 (1960).

"In order for a deed or real estate contract to be deemed a mortgage, the party asserting an equitable mortgage must show

  • (1) That the consideration for the [instrument] was an existing indebtedness, together with the amount of such indebtedness; and
  • (2) that such indebtedness was not extinguished by the conveyance, but was kept alive."
Steckelberg v. Randolph, 404 N.W.2d at 148; Greene v. Bride & Son, 252 Iowa at 224, 106 N.W.2d at 606.

"Other factors may support the finding of an equitable mortgage."

"[T]he execution and delivery of an option to repurchase, the unavailability of legal advice for the grantor, and financial hardship as an inducement to the grantor in entering the agreement, all constitute classic circumstances pointing to a debtor-creditor relationship."

Steckelberg v. Randolph, 404 N.W.2d at 149.

"Iowa courts are reluctant to construe an agreement that continues a debtor-creditor relationship as an absolute conveyance. If it is unclear what the parties intended, the court should "resolve the doubt in favor of an equitable mortgage."


"see also

Greene v. Bride & Son, 252 Iowa at 226-27, 106 N.W.2d at 207 ("absolute deed accompanied by a contract to reconvey on specified conditions . . . will be construed to be a mortgage rather than a privilege to repurchase or a conditional sale");

Cullen v. Butterfield, 178 Iowa 621, 160 N.W. 125, 129 (1916)("If there be doubt on the question, courts almost universally hold that the transaction should be construed to be a mortgage, and not a conditional sale.")"

The Bankruptcy Court Declares The Contract Between The Farmer & The Investor Be Deemed A Mortgage

The court identified the following facts that show that the contract in this case was to be disregarded and treated as an equitable mortgage:

  • "[The farmer & his wife] were in a desperate financial situation at the time of entering into the Contract, and their situation was an inducement to enter into the agreement."

  • "There was no contemporaneous exchange of consideration for the Contract. The down payment under the Contract was described in a list of existing debts and obligations."

  • "The Contract was subject to cancellation if Litwillers as Sellers repaid the down payment."

  • "[The farmer & his wife] did not have separate counsel during the negotiation and execution of the documents."

  • "The parties executed the Contract on the same date that they executed a lease of the same property."

  • "Under the lease, nearly all the debts and obligations making up the down payment under the Contract were to be credited toward rent of the Farm for 2001. Exhibit 100, attachment. Therefore, contrary to paragraph (1)(b) of the Contract, cancellation of the Contract would not necessarily require repayment of the entire down payment. It appears that the parties' intent was for [investor] to rent [farmers'] farmland in 2001. The Contract seems designed to secure the repayment of existing debt and the receipt of what [investor] would have been entitled to receive if the 2000 farm lease had been performed conventionally, that is, the crop and government payments."


Conclusion of Court's Decision Regarding The Equitable Mortgage Doctrine

The court concluded its opinion as to the equitable mortgage issue with the following paragraph:

"An equitable mortgage in the form of a conditional sale does not become a sale upon the grantor's failure to perform the condition. "If the transaction was a loan in the first instance, it will be treated as such to the end, unless it be shown that the parties afterwards bargained for the property independently of the loan." Greene v. Bride & Son, 252 Iowa at 224, 106 N.W.2d at 606; see also Richardson v. Barrick, 16 Iowa 407, 1864 WL 206 at *2 ("it is a universal rule in equity that once a mortgage, always a mortgage"). Litwillers' failure to make the payments due March 1, 2001, did not effect a transfer of the equitable title to Wollesens. Litwillers retained redemption rights in the property which were not foreclosed. Cullen v. Butterfield, 178 Iowa 621, 160 N.W. at 129; Fort v. Colby, 165 Iowa 95, 144 N.W. 393, 403 (1913)("the equitable right of redemption after default is preserved, remains in full force, and will be protected and enforced by a court of equity"); Richardson v. Barrick, 1864 WL 2 06 at *2 ("the equity of redemption is inseparable from [a mortgage], and every attempt to limit or defeat that right must fail")."

Case Law Citation:

In re Litwiller, (Bankr. N.D. Ia. Adversary No. 03-9209F, 2006 Bankr. LEXIS 3751 (Dec. 19, 2006) (available online, opinion is available free, PACER registration required. Or you can just drop me me a line and I'll e-mail it to you; either click "comments" below or e-mail me at


Go here for othar posts on the equitable mortgage doctrine in Iowa. Iowa equitable mortgage uranus

Equitable Mortgage - Table Of Posts

Equitable Mortgage / Deeds Absolute Given As Security For A Loan


Tuesday, January 23, 2007

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