Equitable Mortgage Doctrine In Virginia: Part 2
1) The parties in this case are one, Magee, a merchant and postmaster, and the widow ("Annie") of a deceased landowner ("Short") who owned two tracts of land totalling approximately 175 acres.
2) Prior to his death, Short and his wife, Annie, lived in the same neighborhood as Magee, with whom they had been trading for a number of years.
3) Magee was their principal creditor; the accounts of the landowner Short, and Annie represented a sum due to him in excess of $800.00.
4) At some point after the death of the landowner Short, Magee brought suit to subject Short's land to the payment of his debts. The suit was brought by Magee's attorney, one Howerton. The suit resulted in a public sale of Short's land.
5) Annie, the widow of the deceased Short, became the purchaser at the price of $2,275.00.
6) She applied the following sums towards the purchase price:
- $800 from life insurance proceeds upon the death of her husband, Short,
- $464.47 value of her dower interest in her husband's land, which she agreed to have commuted, and
- $50.18 which the Short estate owed to her.
8) Magee was owed $796.24 and, in addition, he agreed to advance $450 on behalf of Annie in connection with the balance due on the sale.
9) As part of the arrangement to aid Annie, she obtained the deed to the property from Howerton (Magee's attorney who also acted as the officer conducting the sale), and then she signed an absolute conveyance to Magee in consideration of the existing $796.24 debt he was owed plus the additional $450 he paid on her behalf.
10) The consideration stated in the deed to Magee, dated July 22, 1931 was $1,321.50.
11) According to court's opinion, Magee:
- "contend[ed] that he declined to allow the debt to him and $450, which he agreed to pay to the commissioner for Annie, to be secured by a deed of trust on the lands, because he did not regard the security as adequate, but he insisted upon Annie securing a deed from the commissioner [Howerton] and to accomplish this he was willing to pay the $450, provided Annie would pay this back on January 1, 1932. But this was conditioned upon the agreement of Annie to convey to him absolutely the two tracts of land, he agreeing that if the January 1, 1932, payment were promptly met, to reconvey the lands to her and take a deed of trust on the lands securing the balance of the Short indebtedness due him."
12) Annie's version of the deal between herself and Magee was that she would buy the lands and secure a deed from the commissioner [Howerton] and then execute a deed of trust, simultaneously, to secure the indebtedness due him.
13) Annie remained in possession of a part of the property, joined by her new husband, Key, for about four years before she brought suit to have the July 22, 1931 deed to Magee declared to be a mortgage.
14) The lower court found the absolute conveyance by Annie to Magee to be a mortgage; the Virginia Supreme Court affirmed.
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The court decribed Annie as being a very simple woman who was lacking in education. She was someone who "confided in other people"; and was someone who "trusted them with the care and adjustment of her business affairs".
The court described her testimony as "show[ing] that she knew very little of the intricacies of business and was densely ignorant of the legal effect of the papers which she entered into, respecting the purchase of the lands which formerly belonged to her husband, and which she desired to acquire and own in her own right."
The court's analysis of the pertinent facts is reflected in the following excerpts from the case:
A) There are several bold and patent facts which stand out in this case and which, we think, shed light upon the issue and serve to point to a right conclusion of the matter.
B) The first is that Annie Short Key had $800 in cash which she wanted to use in the accomplishment of the end she had in view. She did so use it.
C) Second, she had paid out a small amount of money for her husband's estate and this was to be paid back to her and she also had a dower interest in her husband's lands, which she agreed to have commuted, and the amount of money to be realized from these two sources exceed the sum of $500, and this she wanted to go into the purchase of the lands coveted by her.
D) Third, at a public auction sale of the said lands she became the purchaser at the price of $2,275. In a little more than a month and a half she executed the papers referred to, one of which was a deed of bargain and sale, conveying to Magee the identical lands for the consideration of $1,321.50. The disparity and the attendant circumstances are, to say the least, remarkable, but they are potent in affording some clarity of a situation which is involved in obscurity.
E) Of these circumstances, it is startling to note that neither Mr. Magee nor Mr. Howerton [Magee's attorney and the officer who conducted the public sale of the land owned by Annie's deceased husband, Short] had any accurate knowledge of how the sum of $1,321.50, the consideration named in the deed of bargain and sale, executed by Annie Short to Mr. Magee, was arrived at.
F) Mr. Howerton said he could not tell to save his life. Annie Short testified that Mr. Magee computed the sum, yet he was indefinite when asked to account for it. Annie knew nothing about it. One thing she stoutly adhered to was the notion that the paper was a deed of trust.
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G) This ignorant woman was bewildered about it all but she clung to the conviction that the matter was not fixed as she had understood it would be and as she thought it was.
H) Still another one of the circumstances which is inexplicable is that Magee said that he did not employ Mr. Howerton as his attorney and that he did not authorize him to institute the "Short" suit; that the suit was instituted without his knowledge and consent and that he knew nothing of the sale of the land. He did not know when it would be sold. He did not know what the land sold for, and this in the fact of the fact that he had made up an account of the Short indebtedness to him and posted it to Mr. Howerton, an attorney, who instituted the suit upon it in the name of Magee, the creditor.
(Is the court questioning Magee's credibility as a witness under oath here?)
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(The court noted this one additional fact in the case as having significance.)
I) It is significant that the receipt, which Mr. Howerton [Magee's attorney], as special commissioner, gave to Annie Short for the cash payment of $800, in its original form contained a stipulation giving to her the right to pay the balance on or before December, 1932. This provision was marked out by Mr. Howerton on the day the parties visited his office and executed the papers, which was July 22, 1931, though the original receipt was written on June 5, 1931.
The agreement, which was the companion paper to the deed of bargain and sale which was executed by Annie Short to M. D. Magee, provided for the payment to Magee of $450 on or before January 1, 1932, and if this condition were performed Magee would reconvey the lands to Annie Short, or anyone she might suggest, and take a deed of trust securing the balance of the purchase price with accrued interest, and the further provision that Annie Short was to pay the taxes and the insurance for 1931. It was further provided that if Annie Short failed to perform this condition that the titles to the property would be forever vested in Magee.
From the facts revealed by the testimony it is patent that there was little or no chance for one in Annie Short's circumstances to meet this condition and thwart the forfeiture which must ensue.
In Minor on Real Property, vol. 1, page 686, section 605, it is said: "A conditional sale is not a security for money, but is what its designation imports, namely, a sale in good faith, ***."
(I read the foregoing to mean that, because there was little or no chance for Annie to meet this condition, Magee did not make this transaction in good faith and, accordingly, weighs against the transaction being considered a "conditional sale" rather than a mortgage.)
- The matter as it stood before the present suit was instituted was that Magee had collected all the money which was due him by notes and open account and, in addition, he had title to the lands, was actually collecting annual rentals amounting to more than $150 per year, which is an income of about eleven and one-half per cent upon the amount of money stated in the deed as the consideration, and Annie Short Key was in the sorry plight of a renter of the lands which belonged to her deceased husband and which she thought she had secured for herself, and she had seen $1,250, all that she possessed, lost.
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In addition to citing Minor on Real Property, the court also cited Holladay v. Willis, 101 Va. 274, 280, 43 S.E. 616 and Sadler v. Taylor, 49 W.Va. 104, 38 S.E. 583, for some general principles on the equitable mortgage doctrine in Virginia. I think that the citations to these cases may have been intended by the court more as "window dressing" for their decision than anything else. I think that, one way or the other, they weren't going to allow Magee to end up with Annie's 175 acres of land, and they cited these cases for some authority to support how they arrived at their decision (too bad they didn't also cite Tuggle).
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In terms of the general vulnerability of a homeowner facing foreclosure, in my judgment, it is a pretty well established element of the human condition that, the higher one's level of desperation, the higher the level of susceptibility to "seeing mirages." Accordingly, in the same way that one stranded in the middle of a hot desert, dying of thirst, is susceptible to seeing mirages (ie. an oasis), or a terminally ill person is susceptible to "quacks" peddling "miracle cure" medical treatments (ie. more mirages), so too are homeowners facing home foreclosures that threaten to disrupt and uproot their entire families susceptible to "mirage sightings" ("Home Saver Programs", "Mortgage Rescue Plans", "Fresh Start" programs, and other creatively named schemes promising to solve their financial problems).
Along this vein, I have provided below an excerpt from an equitable mortgage case involving another widow - a decision of the U.S. Supreme Court in Villa v. Rodriguez, 79 U.S. 323, 12 Wall. 323, 20 L. Ed. 406 (1870), a case which the Virginia Supreme Court cited in reaching its decision in Tuggle, in which the U.S. Supreme Court comments on the standards that should be applied when judging equitable mortgage cases involving financially desperate homeowners willing to do (or sign) anything in order to keep their homes and land:
- "The law upon the subject of the right to redeem where the mortgagor has conveyed to the mortgagee the equity of redemption, is well settled. It is characterized by a jealous and salutary policy. Principles almost as stern are applied as those which govern where a sale by a cestui qui trust to his trustee is drawn in question. To give validity to such a sale by a mortgagor it must be shown that the conduct of the mortgagee was, in all things, fair and frank, and that he paid for the property what it was worth. He must hold out no delusive hopes; he must exercise no undue influence; he must take no advantage of the fears or poverty of the other party. Any indirection or obliquity of conduct is fatal to his title. Every doubt will be resolved against him. Where confidential relations and the means of oppression exist, the scrutiny is severer than in cases of a different character. The form of the instruments employed is immaterial. That the mortgagor knowingly surrendered and never intended to reclaim is of no consequence. If there is vice in the transaction, the law, while it will secure to the mortgagee his debt, with interest, will compel him to give back that which he has taken with unclean hands. Public policy, sound morals, and the protection due to those whose property is thus involved, require that such should be the law." [footnote omitted]
Villa v. Rodriguez, 79 U.S. 323, at 339.
Go here for other posts on this blog citing Villa v. Rodriguez, 79 U.S. 323 (1870).
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I'll conclude with a quick opinion on the words "confidential relations" that the Villa court used in the above excerpt. Undoubtedly, the typical foreclosure recue operator would argue that the sale leaseback transactions that they offer to financially strapped homeowners are "arms length" transactions that do not involve the existence of confidential relations between rescue operator and homeowner. To the extent that rescue operators approach homeowners, or otherwise hold themselves out, as "professional experts" who are in the business of "helping homeowners save their homes from foreclosure", the operators arguably hold themselves out as "professionals" who are offering a "professional service" to the homeowner and, by doing so, they invite the homeowners to place their trust and confidence in the operators' hands.
It is difficult to see how from such a relationship could spring an arms length transaction. It is arguably a relationship of trust and confidence (just like any fiduciary relationship). For the operators to initiate a relationship by gaining the trust and confidence of financially strapped homeowners by holding themselves out as experts providing a professional service, and then later claim that the purported sale leaseback, foreclosure rescue transaction (or any other "home saver" arrangement, for that matter) was an arms length transaction that was freely entered into by the operators and the homeowners in which the price, requirements, and other terms and conditions were fair and real presents a conflict that, in my view, simply cannot be reconciled.
Go here for Equitable Mortgage Doctrine In Virginia - Part 3.
Go here for all posts on the equitable mortgage doctrine in Virginia. Virginia equitable mortgage yak
