26 Rutgers L. Rev. 1 (1972-1973)
Disguised Real Estate Security Transactions as Mortgages in Substance

handle is hein.journals/rutlr26 and id is 7 raw text is: DISGUISED REAL ESTATE SECURITY TRANSACTIONS
Ever since the English Chancellors regularly began to allow redemp-
tion of mortgages after default, creditors have sought ways to have real
property serve as security free from any right in the debtor to redeem.
As one writer put it, [T]he big idea is to find a form of a transaction that
will have the practical effect of security, yet will be held not to be a se-
curity but to belong to a wholly different jural species and so be held
immune from security law.'
Creditors may use two devices to create real property security
without appearing to enter into a security transaction. A creditor may
require his debtor to grant him land by absolute deed, under oral
agreement or tacit understanding that he will reconvey only if the debt-
or pays the debt when due.2 Alternatively, a creditor may obtain from
his debtor an absolute deed to real property and execute to his debtor
some sort of written agreement (almost invariably withheld from pub-
lic record) to reconvey the property to the debtor upon receiving pay-
ment of the debt. The written agreement to reconvey may take the
form of an option to repurchase,' an unconditional contract obligating
* This article is based on material drawn from the manuscript of a treatise on
Real Estate Mortgages to be published in the near future by Soney & Sage Company
in whom, as well as the authors, copyright is reserved.
** Professor of Law, University of Michigan; formerly Professor of Law, Rut-
gers Law School, Newark, New Jersey.
*** Member, New Jersey Bar; Standing Master, New Jersey Supreme Court; some-
times Assistant Professor of Law, Rutgers Law School, Newark, New Jersey.
2. See, e.g., Scott v. Stewart, 1 N.J. 60, 61 A.2d 765 (1948); Mansfield v. Ham-
mond, 117 N.J. Eq. 509, 176 A. 354 (E. & A. 1935); Elmer v. Lock, 111 N.J. Eq.
426, 162 A. 391 (E. & A. 1932); Vreeland v. Dawson, 55 N.J. 456, 151 A.2d 62
(Ch. 1959); Papsco v. Novak, 94 N.J. Eq. 642, 121 A. 518 (Ch. 1923), a/f'd, 123 A.
926 (E. & A. 1924); Winters v. Earl, 52 N.J. Eq. 52, 28 A. 15 (Ch. 1893), af'd mem.,
52 N.J. Eq. 588, 33 A. 50 (E. & A. 1894); Budd v. Van Orden, 33 N.J. Eq. 143
(Ch. 1880), a/I'd, 33 N.J. Eq. 564 (E. & A. 1881).
3. See, e.g., Russell v. Southard, 53 U.S. (12 How.) 139 (1851); Steffel v. Griss-
ler, 129 N.J. Eq. 425, 19 A.2d 798 (E. & A. 1941); Rempt v. Geyer, 32 A. 266 (N.J.
Ch. 1895) (held mortgage in substance); Pace v. Bartles, 47 N.J. Eq. 170, 20 A. 352
(Ch. 1890) (held not a mortgage in substance); Kintner v. Blair, 8 N.J. Eq. 485 (Ch.
1850) (held mortgage in substance). See also Welsh v. Griffith-Prideaux, Inc., 60
N.J. Super. 199, 158 A.2d 529 (App. Div. 1960) (not clear whether the debtor

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