Equity Of Redemption Described By Real Estate Defined

By Mark Aucamp

Equity of Redemption is:

The right of a mortgagor (the borrower) to have his property released to him by performing his obligations under the mortgage (usually by repaying the outstanding debt, including principal, interest and costs to the mortgagee). The equity of redemption-or equitable right of redemption-represents the legal right of the mortgagor to recover the mortgaged property without hindrance, after any default has been rectified. There is an established rule that a mortgagee can never provide at the time of making the loan for any event or condition on which the equity of redemption shall be discharged and the conveyance absolute. The phrase Equity of Redemption as Explained by Real Estate Defined And there is great reason and justice in this rule, for necessitous men are not, truly speaking, free men, but to answer a present exigency will submit to any terms that the crafty may impose upon them, Vernon v Bethell (1762) 2 Eden 110, 113, 28 Eng Rep 838 (Benton Land Co. v. Zeitler, 182 Mo 251, 81 SW 193 (1904); Winklemen v. Sides, 31 Cal App.2d 387, 88 P.2d 147, 155 (1939)). The equity of redemption can also represent a right to compel the mortgagee to release the mortgaged property, even after the mortgagor has defaulted, at any stage before foreclosure, or an exercise of a power of sale, and before any consequent transfer from the mortgagor of an unencumbered title to the mortgagee.

The legal right to get back the mortgaged property, unencumbered, when the mortgagor has complied with the terms of the mortgage deed is sometimes called, especially in the US, the legal right of redemption, or simply the right of redemption; the legal right to redeem even after there has been a breach of a condition of the mortgage or after the contractual date for complying with the terms of the loan, may be known as the equitable right of redemption. These rights together represent the mortgagors equity of redemption.

Equity of Redemption – Common Law

In the common law, the mortgagors equity of redemption this right normally cannot be waived and any covenant in a mortgage that unreasonably prevents redemption, for example by giving inadequate time to repay the debt, is considered as a clog or fetter on the equity of redemption and is unenforceable (Santley v Wilde [1899] 2 Ch 474 (CA); Noakes & Co Ltd v Rice [1902] AC 24, [1900-3] All ER Rep 34 (HL); Peugh v. Davis, 6 Otto 332, 96 US 332, 24 L Ed 775, 776 (1877); Russo v. Wolbers, 116 Mich App 327, 323 NW.2d 385 (1982)). The principle is that, in natural justice and equity the principal right of the mortgagee is to the money, and his right to the land is only as a security for the money, Thornborough v Baker (1675) 2 Swans 628, 630, 36 Eng Rep 1000.

Equity of Redemption in English Law

In English law, although a clog or fetter on the equity of redemption is void, the right to redeem may be postponed so that the mortgagor is not permitted to repay the principal before the time stipulated in the mortgage deed; provided the postponement is not for an unreasonable length of time given the other terms (especially the interest rate) and is not unconscionable nor oppressive to the nature of a mortgage (Biggs v Hoddinott [1898] 2 Ch 307-owner of public house tied to a brewer for 5 years, but after that free to repay the loan; Fairclough v Swan Brewery Co Ltd [1912] AC 565, [1911-13] All ER Rep 397 (PC)). Postponement is less likely to be considered oppressive when both parties are knowledgeable, acting at arms-length and are independently advised (Knightsbridge Estates Trust Ltd v Byrne [1939] Ch 441, [1938] 2 All ER 444 (CA), affd [1940] AC 613, [1940] 2 All ER 401, 455, 457 (HL)-permitting postponement till the end of 40 years). A clog on the equity of redemption is void if it restricts the right of redemption to a particular person. For example, the mortgagee cannot claim that the heirs of the mortgagee cannot repay the mortgage (Salt v Marquess of Northampton [1892] AC 1, 5 (HL)). Also, a mortgagee may obtain a collateral advantage, such as a restriction on how the mortgaged property is used, or the type of produce sold from the mortgaged premises, while the mortgage subsists, so long as the advantage is not (i) unfair or unconscionable; (ii) in the nature of a penalty clogging the equity of redemption; or (iii) inconsistent with or repugnant to the contractual and the equitable right to redeem (Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 (HL)). In addition, .

Equity of Redemption in US Law

In the States, most jurisdictions adhere to the common-law view that a clog or fetter on the equity of redemption should not make the mortgage irredeemable, nor should the mortgagee seek to gain an unfair collateral advantage (Clark v. Reyburn, 8 Wall 318, 75 US 318, 19 L Ed 354, 356 (1869); Russo v. Wolbers, 116 Mich App 327, 323 NW.2d 385 (1982); Humble Oil and Refining Co. v. Doerr, 123 NJ Super 530, 303 A.2d 898, 908 (1973)). However, several jurisdictions take a more free market approach to collateral advantages, so that in the absence of usury statutes being violated, a collateral, eventhough it outlasts redemption, will be relieved against only on general doctrines of oppressiveness and unconscionable advantage, 4 Am.L.Prop. (Boston, MA: 1952), 16.60, p. 112. More

Cf. statutory right of redemption(US). See also consolidation, once a mortgage loan always a mortgage, prepayment penalty, reconveyance, restrictive covenant, solus agreement, unconscionable bargain, undue influence, usury.

Note:

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Cases in italics are from the United Kingdom or other common law countries (as indicated); other cases are from the USA.

Terms in bold, including equity of redemption, are defined and explained in detail in our Encyclopedia of Real Estate Terms, Third Edition; as well as ONLINE

About the Author: Damien Abbott, B.Sc.,FRICS is the author of the Encyclopedia of

Real Estate Terms

, now in its 3rd Edition and available ONLINE. Damien is an expert in providing definitions for Real Estate terms and today’s term is

EQUITY OF REDEMPTION

. http://realestatedefinedblog.com/

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