Part 2 Security Interests in Land Section I Introduction to Mortgages

1. Part 2 Security Interests in LandSection IIntroduction to Mortgages

2. History of Mortgages of Land • The form of a mortgage • Traditionally a transfer of the fee simple either • With a covenant for reconveyance on payment of the debt, or • Defeasible on condition subsequent (payment of the debt) • This functioned effectively as a means for providing security for a loan • Problem • If the condition was not strictly met, the debtor lost his rights to the property • AND the debtor was still liable for the debt

3. History of Mortgages of Land • In the worst case, if a mortgagor was a day late in the final payment, she would not be entitled to recover her land, even though the debt had been paid off in its entirety • The Courts of Equity were generally willing to provide relief in such cases

4. History of Mortgages of Land • The “equity of redemption” was the judicially imposed right to regain title to the land on payment of the debt, even after the contractual time for payment had passed • It was this right which made a mortgage more than a simply contract • The equity of redemption was eventually recognized as a right which could itself be sold or mortgaged

5. History of Mortgages of Land • Mortgage law is consumer protection law • The right of redemption cannot be waived • “No clogs on the equity of redemption” • The prohibition on clogs or fetters on the equity of redemption follows directly from the nature of mortgage law as consumer protection law • The debtor cannot contract out of rules designed for her protection

6. History of Mortgages of Land • “Once a mortgage, always a mortgage” • Substance over Form the application of mortgage law is determined by the substance of the transaction, not its form • Mortgage law requires such a rule or its consumer protection aspects can be evaded by changing the form of the contract

7. History of Land Mortgages • These rules, while necessary to make mortgage law effective, cause problems in some legitimate transactions • E.g. a true sale with an option to repurchase • A mortgage with a lenders option to purchase • Such transactions may be effective in allocating risk of land value fluctuations

8. Equitable Mortgages • Equitable mortgages occur when no transfer of the legal title is involved • E.g. a second mortgage • A legal mortgage with a formal defect • There is no substantive difference between a legal mortgage and an equitable mortgage

9. Disguised Mortgages • A mortgage that looks like a sale • A conveyance of the fee simple with an oral agreement to reconvey on payment of the debt • A sale that looks like a mortgage • A true sale with an option to repurchase

10. Modern Form of a Mortgage • In some jurisdictions the form of a mortgage remains traditional (e.g. N.B.) • In other jurisdictions, a mortgage is legislative lyconsidered a charge • E.g. Ontario Land Registration Reform Act RSO 1990 c.L.4, s.6(3) • This has no effect on the rights and remedies