Koenig v. Van Reken

Brief Fact Summary. After conveying property in order to receive a loan, a woman defaulted on her payment and was evicted from her home.

Synopsis of Rule of Law. An equitable mortgage exists when a transfer of a deed is intended to provide security for a loan rather than a sale of property. The intention can be deduced from the circumstances surrounding the transaction, including the conduct and relative financial positions of the parties.

Facts. Helen Koenig (Plaintiff) owned a home with three mortgages. Her real estate taxes became delinquent and foreclosure proceedings began on one of the mortgages. Stanley Van Reken (Defendant) offered to service the mortgage and pay the taxes. The parties entered into an agreement, which conveyed the property to Defendant, who would lease it to Plaintiff. Plaintiff was given a right to purchase the property. Defendant prepared the documents and Plaintiff was not represented by an attorney. Plaintiff defaulted on a payment and was then evicted from her home.

Issue. May a deed absolute on its face be considered a mortgage after considering the adverse financial condition of the grantor and the inadequacy of the purchase price for the property?

Held. Yes.
The controlling factor in determining whether a deed absolute on its face should be deemed a mortgage is the intention of the parties. The intention can be deduced from the circumstances surrounding the transaction, including the conduct and relative financial positions of the parties. The value of the property in relation to the price fixed in the alleged sale will also indicate intent.
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 as a mortgage.
Here, the facts show that the parties did not consider the conveyance absolute. The lease-back arrangement entered into by the parties effectively circumvented the right to redeem, which is designed to protect purchasers in times of financial circumstances. The agreement between the parties constituted a mortgage to secure a loan.

Discussion. An equitable mortgage exists when a transfer of a deed is intended to provide security for a loan rather than a sale of pro