## Facts

- Barbara Felton owned an unfinished, uninhabitable residential property and faced foreclosure after defaulting on a construction mortgage.
- Felton and Tahir Zaman, a licensed real estate agent who also bought distressed properties, executed a written contract for Zaman to buy the property for $200,000.
- About a week later, at a closing where neither party had counsel, they executed separate documents: (1) a lease allowing Felton to remain in possession and (2) a short-term option permitting Felton to repurchase at a substantially higher price (about $237,000 within three months).
- Zaman paid off Felton’s mortgage and other obligations and paid Felton the remaining proceeds, roughly $85,000–$86,000 in cash.
- The sale contract did not reference the later lease and option documents.
- Felton later attempted to return the cash to unwind the deal; Zaman refused.
- Felton stayed in the property for more than a year, paid no rent, and never exercised the repurchase option.
- Zaman sued for possession and damages; Felton counterclaimed that the arrangement was a disguised, high-cost loan secured by the deed (an equitable mortgage) and asserted fraud-related and statutory consumer-protection theories.

## Issues

1. Whether the sale contract, leaseback, and repurchase option should be treated together as an equitable mortgage rather than a true sale.
2. Whether a jury finding that Felton knowingly sold the property precluded a court from later determining that the transaction was, in substance, an equitable mortgage.
3. Whether the transaction violated the New Jersey Consumer Fraud Act or other consumer-protection statutes.
4. Whether the transaction was voidable based on principles associated with *In re Opinion No. 26* concerning conduct by nonlawyers in real-estate transactions.

## Decision

- The Supreme Court of New Jersey affirmed the jury’s verdict that Felton knowingly sold the property.
- The Court reversed the rejection of Felton’s equitable-mortgage claim and remanded for reconsideration under a newly adopted eight-factor test.
- The Court held the jury’s “knowing sale” finding did not resolve the distinct equitable question of legal characterization of the overall transaction.
- The Court affirmed dismissal of Felton’s claims under the Consumer Fraud Act and other consumer-protection statutes on this record.
- The Court held *In re Opinion No. 26* was not implicated because Zaman acted in a personal capacity rather than as a broker or provider of legal services.

## Legal Principles

- Courts may recharacterize an absolute deed and related agreements as an equitable mortgage when the transaction, viewed as a whole, functions as a secured loan.
- A factfinder’s determination that a homeowner knowingly executed sale documents does not bar a court from deciding the separate equitable question whether the transaction’s economic reality is a loan secured by the property.
- New Jersey applies an eight-factor test to evaluate equitable-mortgage claims, considering the parties’ relative bargaining power and intent in context, the homeowner’s financial distress, possession and ownership-like obligations, value-price disparity, and repurchase-right pricing and structure.
- The Consumer Fraud Act generally requires a consumer-oriented commercial practice; a private principal-to-principal real-estate transaction, without advertising or fee-based services offered to the public, may fall outside CFA coverage.
- *In re Opinion No. 26* does not render a transaction voidable absent conduct amounting to brokerage or legal services by a nonlawyer in connection with the deal.

## Conclusion

The court affirmed that Felton knowingly entered the sale but held that knowledge did not defeat equitable review of whether the sale-leaseback and repurchase option operated as a disguised mortgage; it adopted an eight-factor equitable-mortgage framework and remanded for application of that test while affirming dismissal of Felton’s consumer-fraud and unauthorized-practice theories.


Zaman v. Felton, 219 N.J. 199, 98 A.3d 503 (N.J. 2014)