Mortgages are a common part of life and can help you purchase property without having to pay the whole price up front. Whilst mortgages are a common, they can be complex. There are a number of different types of mortgages. Each with their own distinct sets of traits. One of these is the equitable mortgage. As the old adage goes, possession is nine tenths of the law. Although, it is not that simple. There are many kinds of proprietary interests. Knowing where and how these form is useful. As such, we have outlined some points on equitable mortgages for you below.
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Mortgages as security interests
A mortgage is a debt instrument. For a loan, a debtor or creditor (the lender), known as the mortgagee, lends money to the borrower or mortgagor. Real estate is given as security. If the borrower fails to pay the lender, the lender retains the right to foreclose on the property offered up as security. This is a type of security interest. They can exist both in law and in equity. Equity runs in tandem to the common law. It is the court of conscience. It is concerned with what is fair. Often, equity will come to the fore where the common law does not provide remedy.
Many mortgages are true legal mortgages. A registered legal mortgage arises when the assets are conveyed to the secured party, but are subject to a right to have the assets returned when certain things are performed. Like paying off the amount owing. The common law and statutes of each state govern these legal mortgages. The Australian Securities and Investments Commission contains guidelines on mortgages on its website.
Equitable mortgage
Conversely, an equitable mortgage exists where there is no legally registered interest. This can occur in a number of ways. Firstly, an equitable mortgage can occur as a legal mortgage that was never perfected by conveying the underlying assets. For example, if there is a mistake on the transfer deed. It would be unfair not to possess an interest in the property in question because of a mere admin error. Here, equity steps in to fix the problem. Ergo, an equitable mortgage forms. A second example is a mortgage over equitable rights. For example, a beneficiary’s interests under a trust. This will necessarily exist in equity only.
An equitable mortgage functions in much the same way as a legal mortgage. However, there are some differences in some contexts. Firstly, a bona fide purchaser for value without notice of the mortgage will cease any equitable interest in the property. Also, because the legal title to the mortgaged property is not vested in the secured party, it means that an extra step is imposed in relation to the exercise of remedies such as foreclosure. Essentially, foreclosure is slightly easier with legal mortgages. Overall, equitable mortgages fulfil much the same purpose.
Whilst mortgages might appear simple, they are not. It is never as easy as simply transferring property from one person to another. There can be a lot to gain, but even more to lose. It is wise to + when dealing with mortgages. As such, seeking legal help from a property lawyer is advised.
