The following (relatively recent) case comes from an Ohio appellate court that applied the equitable mortgage doctrine to prevent a financially strapped homeowner from being evicted from his home. For those in Ohio working to void or set aside foreclosure rescue, sale leaseback, equity stripping arrangements may find some value in this case and, probably more importantly, you may find value from the cases of the Ohio Supreme Court cited therein.
The following summary of the Ohio appellate court is adapted from a post originally appearing here March 21, 2007.
The financially strapped property owner (Gross) in this case successfully asserted equitable mortgage in the lower court against a money lender (Kaeser) where Gross signed over his deed as part of a transaction where Kaeser provided him with some desperately needed funds. In this case, Kaeser initiated a forcible detainer and eviction action in municipal court (limited jurisdiction court) against Gross. Gross filed an answer and a counterclaim in which he alleged that he was the true owner of the property. Due to the allegations in Gross's counterclaim, the case was transferred to the common pleas court (in transferring the case, it appears that the municipal court properly acknowledged its lack of jurisdiction to hear the equitable mortgage counterclaim, unlike the lower courts whose decisions were ultimately reversed in:
Hewitt v. State, 101 Fla. 807; 135 So. 130; (Fla. 1931); see Using Equitable Mortgage Defense Against Eviction In A Foreclosure Rescue Situation (Part 1 of this series),
Essex Property Servs., Inc. v. Wood, 246 N.J. Super. 487; 587 A.2d 1337; (N.J. Superior Ct. 1991); see Equitable Mortgage Defense In Homeowner - Tenant Eviction - Part 5, and
Waters v. Randall, 47 Mass. 479 (Ma. 1843); see Equitable Mortgage Defense In Homeowner-Tenant Evictions - Part 6.)
In unanimously affirming the common pleas court decision in favor of the financially strapped Gross, the Ohio intermediate appellate court made a number of observations, including this one (bold text is my emphasis):
- "Ohio courts have consistently held that an instrument in the form of a deed may be construed in equity to be a mortgage if it is demonstrated that it was intended by the parties to convey the property involved as security for a debt or an obligation.n3 The Ohio Supreme Court in Wilson v. Giddings found the gross inadequacy of price and continued possession by the plaintiff to provide strong support for the determination that a plaintiff's conveyance of real estate to a defendant, although absolute in form, was not a sale absolute, but an equitable mortgage.n4 ... n3 See Bank v. Johnson (1889), 47 Ohio St. 306, 24 N.E. 503; Patrick v. Littell (1880), 36 Ohio St. 79, 82; Wilson v. Giddings (1876), 28 Ohio St. 554. n4 28 Ohio St. at 566."
At the end of this decision, the court concluded with this passing observation which, while probably constituting nothing more than dicta, will give you a flavor for what this case was about (in case you don't feel like reading the whole case):
- "In closing, we note that, if ever there were a situation that cried out for a court to use its equitable powers, this was the case. Here, an employee, who was in legal and financial difficulties, asked his employer for help. He made an agreement whereby his home was held as collateral for the repayment of his debts. The employer, seemingly intent on keeping the employee's property, went to extreme lengths to keep the employee from repaying his debt, first, by adding new debts not encompassed by the original agreement and, later, by attempting to evict the employee from his home. Here, the trial court used its equitable powers to term the agreement a mortgage. By doing so, it prevented Kaeser from retaining ownership in a $ 40,000 home in exchange for lending Gross roughly $ 6,000, some of which Gross had already repaid. Such a result would have been fundamentally unfair. Consequently, we affirm the judgment of the trial court."
I will conclude this post by observing that the three Ohio Supreme Court decisions cited above by the Ohio appellate court in this 2002 case all date back to the 1800's, which seems to be pretty consistent with the equitable mortgage cases that I've written about in the past (and that I'll be writing about in the future) with respect to one point. That is, the case law in respect to the equitable mortgage doctrine in the United States not only appears to be pretty well-settled, but it seems like it's been well-settled for well over 100 years (I'm confident that in Great Britain, which is generally considered to be the source of the common law throughout the U.S., the equitable mortgage doctrine has probably been well-settled for at least 250 years). Accordingly, one shouldn't shy away from relying on the legal principles set forth in these cases simply because the cases are old. To read the whole case, see:
Kaeser v. Gross, (Ohio App. Ct., 1st Dist., 2002 Ohio 4050; 2002)