## Facts

- Marion and Vivian Johnson owned a Virginia home they believed was worth about $260,000, had poor credit, and could not refinance their mortgage.
- Jason C. Washington presented a written arrangement described as an alternative to refinancing; the Johnsons accepted it without reading it fully.
- The closing documents provided that the Johnsons would deed the home to Washington, who would pay about $212,800, largely used to satisfy the Johnsons’ existing mortgage, with remaining funds paid to the Johnsons.
- Washington financed the purchase through new mortgage-secured loans in his own name.
- The Johnsons were permitted to remain in the home, make 12 monthly payments to Washington, and receive a 13-month option to repurchase the property.
- After several months, the Johnsons stopped making the required payments.
- The Johnsons sued, alleging the transaction was a disguised mortgage loan and asserting misrepresentation and violations of federal and state mortgage-lending statutes.
- The district court granted summary judgment to Washington and other moving defendants, treating the deal as an absolute sale; the Johnsons appealed.

## Issues

1. Whether a sale-leaseback with an option to repurchase should be recharacterized as an equitable mortgage when the seller alleges the arrangement functioned as a secured loan.
2. Whether, if the arrangement is an absolute sale rather than an extension of credit, federal and state mortgage-lending statutes and related disclosure duties apply, and whether statutory and misrepresentation claims can survive summary judgment.

## Decision

- The Fourth Circuit affirmed summary judgment for the defendants.
- The court held the arrangement was an absolute sale, not an equitable mortgage, because there was no preexisting or contemporaneous debt from the Johnsons to Washington for the property to secure.
- Because the deal was not a loan, the defendants were not treated as lenders under the invoked lending statutes.
- The court found no genuine dispute of material fact sufficient to proceed on misrepresentation theories where the written documents characterized the deal as a sale with a repurchase option and the Johnsons did not read the proposal before signing.

## Legal Principles

- Equity may treat a transaction structured as a sale as a mortgage only if, in substance, the conveyance serves as security for a debt.
- The existence of a preexisting or contemporaneous debtor–creditor relationship between the parties is central to finding an equitable mortgage; without a debt, the conveyance is not security.
- Where the transaction is an absolute sale, mortgage-lending statutes tied to an extension of credit generally do not apply to the purchaser.
- Clear written transaction documents may defeat claims that the deal was represented as something materially different, particularly at the summary judgment stage.

## Conclusion

The Fourth Circuit refused to recharacterize a distressed-homeowner sale-leaseback with a repurchase option as an equitable mortgage because the homeowners owed no debt to the buyer at the time of conveyance, leaving the transaction outside mortgage-lending statutory regimes.


Johnson v. Washington, 559 F.3d 238 (4th Cir. 2009)