Mortgage substitutes are traced to a traditional judicial intolerance towards attempts to “clog the equity of redemption”.

1.    Equitable right of redemption means that a debtor or mortgagor cannot, in the inception of the instrument, as a part of or collateral to its execution, in any manner deprive himself of his equitable right to in after default in paying the money at the stipulated time, and to pay the debt and interest, and thereby to redeem the land from the lien and encumbrance of the mortgage.
2.    An option to buy the property for a fixed sum cannot be taken contemporaneously by the mortgagee.
•    Void as to clog the equity of redemption regardless of fairness.
•    Void regardless of whether there is actual oppression in the specific case.
•    One view: If the option is exercised in connection with mortgagor default.  Other view: Courts should apply anti-clogging doctrine and equitable relief to protect mortgagors.
NY – if not tied to the default, the option is not enforceable.
CA – if not tied to residential real estate, the option is not enforceable.
•    Could mortgagor take advantage of such rules and purposely go into default to prevent mortgagee from exercising option when unfavorable to mortgagor?
3.    The deed in escrow as a clog.
•    If a deed is delivered into escrow to be returned to the mortgagor upon the debt being satisfied, the deed is an INVALID clog on the equity of redemption.
4.    Subsequent conveyances are generally not considered clogs.
5.    An absolute deed eliminates the grantor’s equity of redemption and the necessity of foreclosure if the debtor defaults.
•    This is true with or without a collateral agreement for reconveyance upon satisfaction.
•    If a collateral agreement exists, the written agreement may be an option to repurchase, contract to reconvey, etc. with a “time is of the essence” provision that forfeits the grantor’s right if he fails to exercies the option or tender payment under the contract within the time limited.
•    If intent was for the deed to stand as security for the debt, the transaction is a mortgage and the debtor has the right to redeem.
•    The issue is whether the substance of the agreement is that of a mortgagor/mortgagee relationship or not.

Q: What is the difference between absolute deed and the deed in escrow that
does clog the equity of redemption?  Is it the separate K to reconvey v. simply held in escrow and relates back to date of delivery into escrow?

6.  Flack v. McClure (Ill. 1990): A quitclaim deed given in exchange for an
advance on the purchase price for tuition was in fact a mortgage.
Six factors for determining whether an equitable mortgage exists:
1.    whether a debt exists
2.    the relationship of the parties
3.    the parties’ sophistication
4.    presence or absence of counsel
5.    who retained possession
6.    adequacy of consideration

* TOTALITY OF CIRCUMSTANCES ANALYSIS

7.  Sannerud v. Brantz (Wyoming 1996): Owner gave real estate broker a deed
with a buy-back agreement in exchange for a loan to pay off the property before repossession.  Owner now wants to quiet title, claiming that the real estate transaction constituted a mortgage.  The transaction was a mortgage because of the disparity in the value and the amount given, there was an agreement for reconveyance, and owner continued in possession of the property after the transaction.  The mortgage is found even if the parties expressly provided for forfeiture with no right of redemption.
-    A deed is not generally a good way to secure a loan.
-    Existence of the buy-back agreement makes it a conditional sale and not an absolute deed.