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Perry v. Queen - No. 3:05-0599, 2006 U.S. Dist. LEXIS 17120 (M.D. Tenn. Feb. 27, 2006)

Rule:

The disparity between the parties as to their sophistication and the circumstances under which they were operating is particularly relevant. Courts view grantors who are lacking in sophistication or who are laboring under stressful circumstances as more likely to have intended their conveyances to serve as security devices, as opposed to as transfers of their land. 

Facts:

Plaintiff’s mortgaged residence was going to foreclosure. He availed of the defendant’s offer that they will give him $11,113.99 to supposedly save his residence, but with several conditions attached; this included provisionss that approximately $3,841.99 would be used to bring plaintiff's mortgage payments current, approximately $2,272 would be used to make mortgage payments through January 2005, and approximately $5,000 would go directly to the plaintiff. In exchange, plaintiff executed a warranty deed, a Residential Lease Agreement, a Lease and Option Disclosure, and a Memorandum of Understanding. When his lease ended, plaintiff had not exercised his option to repurchase. Defendants then served the plaintiff with a detainer warrant in an attempt to regain possession of the property. The plaintiff filed a Complaint alleging that the transaction described above was actually a mortgage loan transaction, with the property acting as security for the $11,113.99 the defendants gave to him. The plaintiff argued that, because this was a mortgage loan transaction, the defendants were subject to the federal Truth in Lending Act (TILA).

Issue:

Was the agreement the parties subject to the TILA?

Answer:

Yes

Conclusion:

A consumer credit transaction qualifies as a mortgage under TILA if two contingencies are met: (1) the transaction is secured by the consumer's principal dwelling; and (2) the annual percentage rate at the consummation of the transaction exceeds a particular amount or the total points and fees payable by the consumer at or before closing exceeds the greater of a) 8 percent of the total loan amount; or b) $400. The relatively low amount of consideration paid by the defendants in exchange for the plaintiff's warranty deed here furthers a determination that the plaintiff intended the deed to serve as security for the loan. Where consideration received by the grantor is much less than the value of his property, there is an inference that a security device, as opposed to an outright sale, was intended. The discrepancy between the value of the property and the price paid by the defendants is indicative of the plaintiff's intent to convey it as a security device. Accordingly, because the plaintiff was indebted to the court compels a finding that the plaintiff intended his conveyance to serve as a security device, the court finds that the plaintiff has shown by clear and convincing evidence that the sale-leaseback transaction in question qualifies as an equitable mortgage.

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