Tahir Zaman v. Barbara Felton (072128)
219 N.J. 199
| N.J. | 2014Background
- In 2007 Barbara Felton, facing imminent foreclosure on an unfinished, uninhabitable home subject to a $105,000 construction mortgage, agreed to sell the property to Tahir Zaman for $200,000. A written land sale contract was signed June 16, 2007.
- At a June 23, 2007 closing (no counsel for either party), Felton signed a deed and separate lease and buy‑back (repurchase) agreements: Felton would lease the property for $1,000/month and had a three‑month option to repurchase for $237,000. No mortgage documents were executed; Zaman paid Felton $85,960 net at closing. Zaman recorded the deed July 19, 2007. Felton remained in possession for 17 months, paid no rent, and did not repurchase.
- Zaman sued for possession and damages. Felton counterclaimed for fraud, slander of title, violations of the Consumer Fraud Act (CFA), Fair Foreclosure Act (FFA), Truth in Lending Act (TILA), and alleged the transactions were an equitable mortgage and/or violated In re Opinion No. 26. Trial was bifurcated: a jury decided whether Felton knowingly sold the property; the judge tried remaining issues.
- The jury (6–1) found by a preponderance that Felton knowingly agreed to sell. The trial judge then dismissed Felton’s remaining claims, including equitable mortgage and CFA claims. The Appellate Division affirmed. Felton sought certification to the New Jersey Supreme Court.
- The Supreme Court affirmed the jury finding, held In re Opinion No. 26 inapplicable, affirmed dismissal of the CFA claim, but reversed dismissal of the equitable‑mortgage claim and remanded for application of an eight‑factor O’Brien test to decide whether an equitable mortgage existed; if an equitable mortgage is found, several statutory claims (FFA, certain TILA claims) should be reconsidered.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the jury verdict (that Felton knowingly sold) should be set aside | Jury verdict was against weight of evidence; Felton did not knowingly sell | Sufficient evidence (written sale contract, deed, cash received, foreclosure threat) supports knowing sale | Verdict upheld; deferential standard applied; sufficient evidence of knowing sale |
| Whether the sale + lease + buy‑back constituted an equitable mortgage | Transactions were a disguised high‑interest mortgage (sale‑leaseback to avoid foreclosure) | Transactions were an actual sale followed by separate protective lease/repurchase agreements | Trial court’s dismissal reversed; remanded to apply O’Brien eight‑factor equitable‑mortgage test |
| Applicability of In re Opinion No. 26 (unauthorized practice / broker duties) | Zaman’s real‑estate license and role at closing violated the principles of Opinion No. 26, voiding transactions | Zaman acted as principal/buyer, not as broker representing a party; no unauthorized practice or legal advice issue | Opinion No. 26 inapplicable; no violation found |
| Statutory claims (CFA, FFA, TILA) | CFA and other statutes protect against foreclosure rescue schemes; TILA and FFA claims should survive if equitable mortgage found | CFA inapplicable to a private non‑professional seller; most TILA claims time‑barred; FFA applies only if lender/mortgage exists | CFA dismissal affirmed; remand to consider FFA and limited TILA claims if the trial court finds an equitable mortgage; most TILA claims time‑barred except certain §1639 claims (3‑year limit) |
Key Cases Cited
- In re Opinion No. 26 of the Committee on the Unauthorized Practice of Law, 139 N.J. 323 (N.J. 1995) (addresses broker conduct and protections for uncounseled residential closings)
- O’Brien v. Cleveland, 423 B.R. 477 (Bankr. D.N.J. 2010) (articulates eight‑factor test for determining when sale/leaseback is an equitable mortgage)
- Johnson v. NovaStar Mortg., Inc., 698 F. Supp. 2d 463 (D.N.J. 2010) (adopts/endorses O’Brien factors as consistent with New Jersey law)
- Welsh v. Griffith‑Prideaux, Inc., 60 N.J. Super. 199 (App. Div. 1960) (equity treats transactions intended as security as mortgages despite form)
- Humble Oil & Refining Co. v. Doerr, 123 N.J. Super. 530 (Ch. Div. 1973) (equity looks to substance over form in mortgage characterization)