Koenig v. Van Reken

Michigan Court of Appeals · 1979 · Property

279 N.W.2d 590 (1979)

Updated July 23, 2026

Propertyequitable mortgagedeed absolute on its faceintent of the partiesfinancial distressinadequacy of considerationlease-backoption to repurchase

Facts

Plaintiff owned a home worth $60,000 that was encumbered by mortgages totaling $25,933.26, and she was in financial distress because taxes were delinquent and foreclosure proceedings had begun. Defendant Stanley Van Reken proposed to "service" the mortgages and pay delinquent taxes, and on June 16, 1970, the parties executed an agreement, a warranty deed conveying the property to defendants for a stated $28,600, and a lease-option arrangement giving plaintiff a three-year lease and an option to repurchase. Plaintiff alleged she signed the deed without a stated consideration, the $28,600 figure was later added, and she never received that consideration; all documents were prepared by Van Reken and plaintiff had no attorney. Plaintiff made payments under the lease for about twenty months, then defaulted and was evicted.

Issue

Did plaintiff's complaint state a legally sufficient claim that the warranty deed and related lease-option transaction should be treated as an equitable mortgage rather than an absolute conveyance? More specifically, could the claim proceed even though defendants argued there was no expressly alleged underlying obligation owed by plaintiff to defendants?

Rule

On a motion under GCR 1963, 117.2(1), courts examine the pleadings alone, accept well-pleaded facts as true, and dismiss only if the claims are so clearly unenforceable as a matter of law that no factual development could justify recovery. In determining whether a deed absolute on its face should be deemed a mortgage, the controlling factor is the intention of the parties, which may be inferred from the surrounding circumstances, including the conduct and relative economic positions of the parties and the value of the property in relation to the price fixed; under Michigan law, the grantor's adverse financial condition coupled with inadequacy of purchase price is sufficient to establish that such a deed is actually a mortgage.

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In Grand Rapids, Marisol Vega owned a duplex worth about $420,000 subject to liens totaling $250,000. After tax delinquency notices and a pending foreclosure advertisement, she signed documents prepared by Nolan Cross of Red Maple Housing Solutions: a warranty deed, a two-year lease allowing her to stay, and an option to repurchase; she alleges she sought only help saving the property and that the price stated in the deed was far below the duplex's value.

Red Maple moves to dismiss for failure to state a claim, arguing the recorded deed is absolute on its face. Assuming Marisol's allegations are well pleaded, how should the court rule?

Explanation. On a motion attacking the legal sufficiency of the complaint, the court examines the pleadings alone, accepts well-pleaded facts as true, and dismisses only if no factual development could justify recovery. A deed absolute on its face may be treated as a mortgage if the parties intended it as security, and intent may be inferred from circumstances such as financial distress and inadequate consideration. Those allegations are enough to survive dismissal.