Zaman v. Felton

Barbara Felton (defendant) purchased a tract of land and obtained a construction mortgage to begin building a residence. After Felton defaulted on her mortgage and faced imminent foreclosure, she reached multiple agreements with Tahir Zaman (plaintiff). Under a land sale agreement, Felton sold the property to Zaman for $200,000. On the day of closing a week later, the parties signed a lease under which Felton would rent the property from Zaman and remain in possession. They also signed an agreement giving Felton the option to buy back the property for $237,000 within three months. At closing, Zaman paid Felton approximately $85,000, which represented the difference between the purchase price and the outstanding construction loan and other obligations. The land sale agreement did not reference the buy-back provision or lease. After closing, Felton sought to return the $85,000 to rescind the agreement, but Zaman refused. Felton continued to possess the property without paying the rent the lease required. Zaman brought suit seeking possession of the property. Felton countersued, seeking a declaratory judgment that the parties’ agreement constituted one transaction that was an equitable mortgage. The trial court dismissed Felton’s countersuit, finding that she intended to sell the property and that the agreements were separate and did not constitute an equitable mortgage. The appellate court affirmed. Felton appealed.