1.5 So-Called “Equitable Mortgages.”

• Jurisdiction: Arizona

An “equitable mortgage” is any device that is utilized in a lender’s effort to “clog” the equity of redemption (i.e., take or keep title from the borrower, or frustrate the borrower’s common-law right to clear title by satisfying the secured obligation). Equitable mortgages often appear to be complete transfers of the fee interest but really function as security (e.g., a “quit-claim deed” given for security, often with an unrecorded agreement as to the nature of the transaction).

Equitable mortgages are included within the broad statutory definition of a mortgage under A.R.S. § 33-702. Whether or not a conveyance is a mortgage is a question of the intent of the parties as inferred from all surrounding facts and circumstances, including the conduct of the parties subsequent to execution. See Rogers v. Greer, 70 Ariz. 264, 219 P.2d 760 (1950). See also Merryweather v. Pendelton, 90 Ariz. 219, 367 P.2d 251 (1961); Britz v. Kinsvater, 87 Ariz. 385, 351 P.2d 986 (1960); Coffin v. Green, 21 Ariz. 54, 185 P. 361 (1919); Bostwick v. Jasin, 170 Ariz. 15, 821 P.2d 282 (1991); Moreno v. Garcia, 169 Ariz. 586, 821 P.2d 247 (App. 1991) (overruled on other grounds, Curtis v. Morris, 186 Ariz. 534, 925 P.2d 259 (1996)). Extrinsic evidence necessary to establish an equitable mortgage must be clear and convincing. Bostwick v. Jasin, 170 Ariz. at 17, 821 P.2d at 284; Downs v. Ziegler, 13 Ariz. App. 387, 477 P.2d 261 (1970).

The most common transfers that may be deemed equitable mortgages are:

(1) An absolute deed with a side agreement between grantor and grantee; and

(2) A deed...