MBE Rules · Real Property
Equitable Mortgage
Equitable mortgage
The rule
A deed absolute intended only as security is treated as a mortgage; the grantor may prove the security intent by parol evidence, and the grantee must foreclose rather than keep the land.
In plain English
An equitable mortgage occurs when a deed that appears to transfer ownership is actually meant to serve as security for a loan. The person who transferred the deed can use verbal evidence to show that their intention was to secure a loan rather than to give away their property.
Worked example
Alice gives Bob a deed to her house, intending it to serve as security for a loan of $100,000. When Alice defaults on the loan, Bob cannot simply keep the house; he must go through the foreclosure process to reclaim his investment. The court recognizes the deed as an equitable mortgage based on Alice's intent.
Memory hook
A deed can be a trap; if it’s meant to secure, it’s an equitable mortgage!
The trap
Exams may present scenarios where the intent behind the deed is ambiguous, leading students to misinterpret it as a straightforward sale rather than a security interest. Be cautious of language that suggests dual purposes.
How examiners test it
Questions often involve fact patterns where a deed is given under questionable circumstances, prompting candidates to analyze the intent behind the transfer and whether it constitutes an equitable mortgage.
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