## Facts

- Helen Koenig owned a home alleged to be worth about $60,000, subject to multiple mortgages totaling about $25,933.26.
- Koenig became delinquent on real estate taxes, and foreclosure proceedings began on one mortgage.
- Stanley Van Reken approached Koenig and represented he could pay delinquent taxes and service the mortgages if she entered a transaction transferring the property.
- The parties executed related documents: an agreement for Van Reken to purchase the property, a warranty deed conveying title to Van Reken for about $28,600, and a lease-back with an option for Koenig to repurchase.
- Koenig alleged she was not represented by counsel, the documents were prepared at Van Reken’s direction, and she did not receive the full stated consideration.
- After closing, Koenig remained in possession as a tenant and made payments under the lease/option arrangement.
- Koenig later defaulted on a payment and was evicted.
- Koenig sued seeking to have the deed declared an equitable mortgage; she also pleaded unjust enrichment, but only the equitable-mortgage dismissal was appealed.
- The circuit court granted defendants summary judgment for failure to state a claim under former GCR 1963, 117.2(1) and dismissed the action.

## Issues

1. Whether the complaint alleged facts that, if proven, could support treating a deed absolute on its face as an equitable mortgage intended to secure a debt rather than an outright sale.
2. Whether summary judgment under former GCR 1963, 117.2(1) was proper where the pleaded circumstances included financial distress, alleged inadequacy of consideration, and a lease-back with repurchase rights.

## Decision

- The Court of Appeals reversed the order granting summary judgment on the equitable-mortgage count and remanded for further proceedings.
- Applying the pleadings-only standard, the court accepted well-pleaded allegations as true and asked only whether the claim was so clearly unenforceable that no factual development could justify recovery.
- The court held the complaint stated a legally sufficient equitable-mortgage claim because it alleged circumstances from which a factfinder could infer the parties intended the deed as security for a loan.
- The court emphasized allegations of Koenig’s adverse financial condition, the alleged disparity between market value and the stated purchase price, and Koenig’s continued possession under a lease with a right to repurchase.

## Legal Principles

- A deed absolute on its face may be treated in equity as a mortgage when the parties intended it to serve as security for a debt rather than a true conveyance.
- The controlling consideration is the parties’ intent, which may be inferred from the circumstances of the transaction, including the parties’ relative financial positions, their conduct, and the relationship between the property’s value and the stated price.
- Under Michigan law, a grantor’s adverse financial condition combined with inadequacy of consideration can be sufficient to support equitable-mortgage treatment.
- A lease-back coupled with repurchase rights may support an inference that the arrangement functioned as financing and effectively displaced redemption-type protections, making intent to create security a triable factual question.
- On a motion testing only the legal sufficiency of the pleadings, courts do not weigh evidence; they determine whether the allegations, if proved, could entitle the plaintiff to relief.

## Conclusion

The court held that Koenig’s allegations of financial distress, substantially below-market consideration, and a deed-and-leaseback structure with repurchase rights plausibly supported an equitable-mortgage theory, making dismissal on the pleadings improper and requiring further factual development on remand.


Koenig v. Van Reken, 89 Mich. App. 102, 279 N.W.2d 590 (Mich. Ct. App. 1979)