LESLIE LONDON V VIRGINIA L GREGORY
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STATE OF MICHIGAN
COURT OF APPEALS
LESLIE LONDON,
UNPUBLISHED
February 23, 2001
Plaintiff-Appellant,
v
No. 216473
Oakland Circuit Court
LC No. 98-417091-AV
VIRGINIA L. GREGORY,
Defendant-Appellee.
Before: Whitbeck, P.J., and Murphy and Cooper, JJ.
PER CURIAM.
Plaintiff appeals by leave granted from a circuit court order denying plaintiff’s appeal and
affirming the district court’s ruling that the deed granted from defendant to plaintiff constituted
an equitable mortgage rather than a conveyance of real property. We affirm.
Defendant owned a piece of real property for which the mortgage was about to be
foreclosed. Two days before foreclosure was to occur and the equity of redemption period was to
expire, defendant and plaintiff entered an agreement wherein defendant transferred her interest in
the property to plaintiff by warranty deed. Plaintiff then redeemed the property for $38,231.69,
making her the fee owner, and at the same time, executed an eighteen-month lease agreement
with defendant. The agreement provided that defendant remain in possession of the property and
pay $400 a month in rent to plaintiff. The agreement also granted defendant an option to
purchase the property for $48,239.77 at the end of the lease, with closing to take place on or
before December 17, 1997. However, the purchase option was only available if all rent payments
were made on a timely basis.
Of the eighteen scheduled rent payments, defendant made one, which was late. On
December 16, 1997, plaintiff sent defendant a thirty-day notice to quit and initiated an action for
summary proceedings in district court to evict defendant. However, the district court found that
the deed from defendant to plaintiff was not a conveyance of property, but rather, an equitable
mortgage. An order was entered denying plaintiff’s request for possession of the property and
ruling that the warranty deed and rental agreement created an equitable mortgage. The circuit
court denied plaintiff’s appeal, affirming the district court’s finding of an equitable mortgage.
The circuit court found no error in the district court’s refusal to take testimony regarding
plaintiff’s intent because the information before it, including affidavits of each party, was
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sufficient to determine the intent of the parties. The circuit court also found that the deed and
rental agreement was not an absolute conveyance, but rather, a mortgage.
Plaintiff now argues that the circuit court both erred in refusing to compel the district
court to consider testimony on the issue of intent and erred by ruling, as a matter of law, that the
conveyance of property was an equitable mortgage. We disagree. This Court reviews equitable
determinations de novo and the findings of fact in support of those equitable decisions for clear
error. LaFond v Rumler, 226 Mich App 447, 450; 574 NW2d 40 (1997); Grant v Van Reken, 71
Mich App 121, 125; 246 NW2d 348 (1976). A trial court’s findings are clearly erroneous if we
are left with a definite and firm conviction that a mistake has been made. LaFond, supra.
“The power of a court of equity to decree an equitable mortgage under proper
circumstances and to construe an instrument in the form of an absolute conveyance as security
for the payment of a debt, or the performance of some other obligation, is well established.”
Judd v Carnegie, 324 Mich 583, 587; 37 NW2d 558 (1949); see also, Grant, supra at 125. We
agree with the lower courts that the subject transaction constituted a mortgage to secure the
repayment of a loan. We also agree that testimony on the intent of the parties was not necessary
to reach that decision.
Plaintiff argues that this was not a loan because no loan application was taken nor was
defendant’s financial condition discussed. Plaintiff further argues that a loan was never
discussed and plaintiff was not in the business of mortgage lending. Moreover, plaintiff claims it
was error for the district court not to hear testimony on the issue of intent. When determining
whether to grant equitable relief, the court "protects the necessitous by looking through form to
the substance of the transaction." Koenig v Van Reken, 89 Mich App 102, 106; 279 NW2d 590
(1979). The controlling factor in determining whether a deed absolute on its face should be
deemed a mortgage is the intention of the parties. Id. However, contrary to plaintiff’s arguments
that the parties’ testimony was required for this determination,
[s]uch intention may be gathered from the circumstances attending the transaction
including the conduct and relative economic positions of the parties and the value
of the property in relation to the price fixed in the alleged sale. 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. [Id. (citations omitted).]
The facts of Koenig are remarkably similar to those of the instant case. In Koenig, the
defendants helped the plaintiff, in financial distress, in saving her home from foreclosure. The
plaintiff essentially conveyed the property by warranty deed to defendant Stanley Van Reken for
no consideration, while he redeemed it out of foreclosure. The transaction resulted in the
plaintiff conveying her equity, worth over $30,000, for less than $4,000. Id. at 107. Under their
“agreement,” the defendant leased the property to the plaintiff with an exclusive option to
repurchase the property during the term of the lease. The plaintiff eventually defaulted in her
monthly rental payments and was thereupon evicted from the home. Id. at 105. This Court
found that, “[w]hile financial embarrassment of the grantor and inadequacy of consideration do
not provide an infallible test, they are an indication that the parties did not consider the
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conveyance to be absolute.” Id. at 107. This Court held that the transaction constituted a
mortgage to secure a loan. Id.
Grant, supra, is also similar to this case. The plaintiffs were in financial straits and the
mortgages on their home were in the process of foreclosure. Id. at 127. The defendant, Stanley
Van Reken, the same defendant as in Koenig, entered into an agreement with the plaintiffs
whereby, in exchange for a warranty deed to the property, the plaintiffs obtained a two-year lease
with an option to repurchase the property at any time during the term of the lease. Id. at 123.
The defendant ultimately expended only $2,300 to redeem and obtain a deed to property worth
$25,000. Id. at 127. This Court found the inadequacy of consideration for the purported
conveyance blatant, and giving great weight to this inadequacy of consideration, and the fact that
the plaintiffs were financially embarrassed, determined that the deed, absolute in form, was a
mortgage. Id.
Applying the principles in these cases to the facts and circumstances surrounding the
instant transaction, we find that this deed and rental agreement with an option to repurchase was
a mortgage. Defendant was having financial problems at the time of the disputed transaction, as
her property was two days away from foreclosure. About to lose her home, defendant entered
into an agreement with plaintiff whereby defendant was able to lease the property for eighteen
months with the option to purchase at the end of the lease. In exchange for the opportunity to
keep her home, defendant conveyed the property to plaintiff by warranty deed for $1. Plaintiff,
as the fee owner of the property, was then able to redeem the property for $38,231.69. Through
this cash outlay, plaintiff obtained a deed to property worth approximately $120,000.
These facts demonstrate an inadequacy of consideration. Moreover, defendant entered
into this agreement two days before foreclosure was to occur and without the assistance of
counsel. See Koenig, supra at 105; Grant, supra at 127. The bargaining position of the parties
was anything but equal. See Grant, supra at 128. In addition, the fact that defendant remained in
possession of the property after granting plaintiff the deed further evidences that this was not an
outright conveyance. Defendant thought this arrangement was a loan that would enable her to
redeem her property and extend the debt for eighteen months. Although it was not plaintiff’s
intent to make a loan, it was not defendant’s intent to sell her home. For all these reasons, we
hold that the transaction at issue in this case was an equitable mortgage. Accordingly, we find no
error in the rulings of the district or circuit courts.
Affirmed.
/s/ William C. Whitbeck
/s/ William B. Murphy
/s/ Jessica R. Cooper
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