Mortgages 2
Mortgagor vs. Mortgagee
The complexity of this cannot be overstated, and it is really not as easy as securing the right of one party entirely
As previously mentioned, the mortgagees take a huge risk by giving this big loan out and therefore they must receive
sufficiently security that they would be able to recover any loses through the property
Equally, where it comes to someone’s home, with unequal measure of power in comparison to the lender, their rights
must also be given sufficient proportion.
To answer that we need to have a look at the rights of the mortgagor and the security of the mortgagee
Rights of the Mortgagor
- Equitable ‘right to redeem’
Historically, if the mortgagor didn’t redeem the mortgage ON the legal date for redemption, they essentially forfeited
the property to the mortgagee, … even if they were just a few hours or days late!
This would often mean that the mortgagees were in a highly advantageous position because usually there would not be
much debt outstanding on the mortgage, and yet, the property itself would be theirs too
Q: Does this sound fair?!
NO!
It was because of this wide potential for unfairness (and abuse) that the court of equity would allow the mortgagor to
redeem their mortgage EVEN once the legal date for redemption had passed.
The equitable right to redeem refers to the mortgagors right to pay off the mortgage
- Arguable, the most important right of all!
We know that until the mortgage is repaid, the lender will enjoy a right over the property.
The only way in which the mortgagor can enjoy the rights to the property, unencumbered by the rights of the lender, is
when the mortgage is paid off.
Contractual ‘Right to Redeem’
A Mortgagor also has the contractual right to redeem as per the terms specified in the contract!
Once the legal date for redemption has passed, the mortgagor can then be said to have an ‘equitable right to redeem’
Equitable ‘Right to Redeem’
For example, it is not possible to include a term in a mortgage contract reserving the mortgagee the right to purchase
the mortgagor’s property
Why not?
Because this goes against the very nature of the mortgage and it ‘offends’ the mortgagor’s contractual and equitable
right to redeem (Jones v Morgan [2001])
Therefore – ‘once a mortgage, always a mortgage’
, Contractual ‘Right to Redeem’
Contractual right to redeem = typically 6 months after the agreement is entered into
In practice, it’s rare for the mortgagor to redeem on this date. it is also the expectation of both sides (borrower and
lender) is that the mortgage will endure for many years…
Q: Why is this important?
1. Once the mortgagor reaches the legal date of redemption, they are then said to have the equitable right to
redeem. and…
2. Once the legal date of redemption has passed, the remedies of the mortgagee’s are triggered.
Equitable ‘right to redeem’
central to this is the principle = ‘once a mortgage, always a mortgage’
Which basically means that the mortgagor will always have the right to obtain the ‘full ownership’ once they have paid
off the debt owed.
The right to redeem recognizes that the mortgagor always retains ‘paramount legal title in the land
in other words, when you sign up to a mortgage, you are not conveying all the proprietary rights in the land to the
mortgagee.
‘Once a mortgage, always a mortgage’
= The principles go right to the heart of the true relationship between the mortgagor and the mortgagee
After all, a mortgage is simply a way of providing security for the mortgagee – not making them a rightful owner.
The mortgagee therefore only needs as much right in the land, as it would enable them this security in case the
mortgagor defaults on repayments
A term which tries to restrict the right to redeem will be struck down = ‘unfettered redemption’
Unfettered? Not confined or restricted
To translate = there should be no other conditions on the mortgagor’s right to repay the loan
What if the lender attaches additional conditions which the mortgagor must comply with in order to be able to
redeem the mortgage?
A classic example … PUBS
The landlord would take out a mortgage
The mortgagee would be a particular brewery
The collateral advantage for the brewery – landlord would be required to purchase/ sell only the brewery’s brand of
beer for the pub.
Mortgagor vs. Mortgagee
The complexity of this cannot be overstated, and it is really not as easy as securing the right of one party entirely
As previously mentioned, the mortgagees take a huge risk by giving this big loan out and therefore they must receive
sufficiently security that they would be able to recover any loses through the property
Equally, where it comes to someone’s home, with unequal measure of power in comparison to the lender, their rights
must also be given sufficient proportion.
To answer that we need to have a look at the rights of the mortgagor and the security of the mortgagee
Rights of the Mortgagor
- Equitable ‘right to redeem’
Historically, if the mortgagor didn’t redeem the mortgage ON the legal date for redemption, they essentially forfeited
the property to the mortgagee, … even if they were just a few hours or days late!
This would often mean that the mortgagees were in a highly advantageous position because usually there would not be
much debt outstanding on the mortgage, and yet, the property itself would be theirs too
Q: Does this sound fair?!
NO!
It was because of this wide potential for unfairness (and abuse) that the court of equity would allow the mortgagor to
redeem their mortgage EVEN once the legal date for redemption had passed.
The equitable right to redeem refers to the mortgagors right to pay off the mortgage
- Arguable, the most important right of all!
We know that until the mortgage is repaid, the lender will enjoy a right over the property.
The only way in which the mortgagor can enjoy the rights to the property, unencumbered by the rights of the lender, is
when the mortgage is paid off.
Contractual ‘Right to Redeem’
A Mortgagor also has the contractual right to redeem as per the terms specified in the contract!
Once the legal date for redemption has passed, the mortgagor can then be said to have an ‘equitable right to redeem’
Equitable ‘Right to Redeem’
For example, it is not possible to include a term in a mortgage contract reserving the mortgagee the right to purchase
the mortgagor’s property
Why not?
Because this goes against the very nature of the mortgage and it ‘offends’ the mortgagor’s contractual and equitable
right to redeem (Jones v Morgan [2001])
Therefore – ‘once a mortgage, always a mortgage’
, Contractual ‘Right to Redeem’
Contractual right to redeem = typically 6 months after the agreement is entered into
In practice, it’s rare for the mortgagor to redeem on this date. it is also the expectation of both sides (borrower and
lender) is that the mortgage will endure for many years…
Q: Why is this important?
1. Once the mortgagor reaches the legal date of redemption, they are then said to have the equitable right to
redeem. and…
2. Once the legal date of redemption has passed, the remedies of the mortgagee’s are triggered.
Equitable ‘right to redeem’
central to this is the principle = ‘once a mortgage, always a mortgage’
Which basically means that the mortgagor will always have the right to obtain the ‘full ownership’ once they have paid
off the debt owed.
The right to redeem recognizes that the mortgagor always retains ‘paramount legal title in the land
in other words, when you sign up to a mortgage, you are not conveying all the proprietary rights in the land to the
mortgagee.
‘Once a mortgage, always a mortgage’
= The principles go right to the heart of the true relationship between the mortgagor and the mortgagee
After all, a mortgage is simply a way of providing security for the mortgagee – not making them a rightful owner.
The mortgagee therefore only needs as much right in the land, as it would enable them this security in case the
mortgagor defaults on repayments
A term which tries to restrict the right to redeem will be struck down = ‘unfettered redemption’
Unfettered? Not confined or restricted
To translate = there should be no other conditions on the mortgagor’s right to repay the loan
What if the lender attaches additional conditions which the mortgagor must comply with in order to be able to
redeem the mortgage?
A classic example … PUBS
The landlord would take out a mortgage
The mortgagee would be a particular brewery
The collateral advantage for the brewery – landlord would be required to purchase/ sell only the brewery’s brand of
beer for the pub.
