Where The Buyer And Seller Had No Pre-exisiting Debtor-creditor Relationship The Transaction Is A Sale Not An Equitable Mortgage And TILA Does Not Apply

In Johnson v. Washington, — F.3d —-, 2009 WL 446094 (4th Cir., (Va.),2009) the Plaintiff’s sold their home but continued to rent the property from the buyer and retained an option to repurchase. After falling behind on their payments they brought sued the buyer, alleging violations of the Truth in Lending Act (TILA), and various state law claims. The Plaintiffs’ central claim was that the transaction gave rise to an equitable mortgage under Virginia common law, thereby obligating the seller to comply with federal and state consumer protection statutes, such as TILA. The District and Appellate Courts disagreed. TILA only covers creditor and consumer transactions To show that defendants were required to comply with TILA the Plaintiffs had to show that their transaction created a lending relationship. The deed to the Plaintiffs was absolute on its face and there was no preexisting or contemporaneous debt between the parties. The requirement of a debt between the parties is more than a formality. Quoting the Supreme Court of Appeals of Virginia [a] mortgage without a debt to support it is a legal solecism, and neither the intention of the parties nor their express contract can change the essential nature of things.’ Therefore there was no basis for finding an equitable mortgage and no obligation on the seller’s part to comply with TILA.