§20.5 - Mortgages, Alternative Types, Variations, and Modifications

• Jurisdiction: Washington

§20.5 MORTGAGES, ALTERNATIVE TYPES, VARIATIONS, AND MODIFICATIONS

Those protected by the recording statute, RCW 65.08.030& .070, are entitled to rely on the recorded documents' label and contents. If one is dealing with the original parties or a person not protected by the recording statute, however, the label of the instrument as a mortgage, deed, or sale-leaseback is not necessarily determinative of the actual type of instrument in question.

The Washington Supreme Court has held that whether the instrument is a mortgage or a deed is determined at the inception of the transaction, Pittwood v. Spokane Sav. & Loan Soc'y, 141 Wash. 229, 251 P. 283 (1926), by analyzing the substance of the transaction. Although there is a presumption that the instrument is what it is labeled, the court will look at all the evidence to determine the substance of the transaction. Beadle v. Barta, 13 Wn.2d 67, 123 P.2d 761 (1942). To determine the substance of the transaction, it is necessary to determine the intent of the parties. Pittwood, 141 Wash. 229. If the intent of the parties was to create a debtor-creditor relationship, Washington courts lean in favor of declaring the instrument a mortgage. Beadle, 13 Wn.2d 67. Once the substance of the transaction is determined and the nature of the instrument is identified, the instrument remains such throughout its life; i.e., once a mortgage, always a mortgage.

Alternative Mortgages in Washington are discussed below.

(1) Equitable mortgage

An equitable mortgage is an instrument that fails to meet the formal requirements of a mortgage, but is nevertheless enforced as a mortgage. An equitable mortgage arises from a transaction, regardless of its form, that in fact is an attempt or offer to pledge land as security for a debt or liability. The intention of the parties to offer the land as security for a debt is controlling and creates an equitable mortgage even though the conveyance lacks the formal requisites of a mortgage or is expressed in inapt or nontechnical language. 59 C.J.S. Mortgages §12 (1998 & Supp. 2008). A court of equity will regard the instrument, technically deficient as a mortgage, as binding between the parties to the same extent as if the instrument were a properly executed mortgage. 55 AM. JUR. 2D Mortgages §11 (1971).

Any document may be a mortgage or any relationship may be that of mortgagor (borrower)-mortgagee (lender) if the parties so intend.

Assuming the evidentiary problems can be overcome, the agreement between the parties will be binding. Thus, it has been held that an informal mortgage or a parol agreement that has been fully performed creates an equitable mortgage. Fleishbein v. Thorne, 193 Wash. 65, 74 P.2d 880 (1937); Borrow v. Borrow, 34 Wash. 684, 76 P. 305 (1904). A deed, absolute on its face, may also create an equitable mortgage if it is shown the parties intended a mortgage rather than a deed. Pittwood v. Spokane Sav. & Loan Soc'y, 141 Wash. 229, 251 P. 283 (1926). If, however, a stranger without notice and within the protected category (i.e., a subsequent purchaser or mortgagee in good faith for valuable consideration) is involved, one must move to the third step of the analysis, which involves the recording statute, Chapter 65.08 RCW.

As with other deeds or recorded instruments, if an instrument creating an equitable mortgage is recorded, it will give constructive notice only to those purchasers taking subsequent to the filing and recording. Kendrick v. Davis, 75 Wn.2d 456, 452 P.2d 222 (1969); Choukas v. Carras, 195 Wash. 659, 81 P.2d 841 (1938); Redemptorist Fathers v. Purdy, 174 Wash. 358, 24 P.2d 1089 (1933).

(a) Intent requirement

Washington courts will recognize an equitable mortgage in cases where the intent of the parties was to create an interest in particular property to secure the payment...