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The following article was published in our article directory on February 24, 2012.
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Equity of Redemption | Outlined by Real Estate Defined

Article Category: Advice

Author Name: 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 right|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 Definition of|The phrase} Equity of Redemption as {Explained|Described|Defined} 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 {may also|could also|might also|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 right to|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 right to|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 {called the|known as the} 'equitable right of redemption'. These rights together represent the mortgagor's equity of redemption.

Equity of Redemption - Common Law

{In common|In accordance with common|In the common} law, the {borrower's|mortgagor's} 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 regarded as|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 AC 24, 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|the legal 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|for five} 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|not as likely} to be considered oppressive when both parties are knowledgeable, acting at arm's-length and are independently advised (Knightsbridge Estates Trust Ltd v Byrne Ch 441, 2 All ER 444 (CA), aff'd AC 613, 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, {provided that|so long as|as 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 AC 25 (HL)). {In addition|What's more}, ....
Equity of Redemption in US Law

{In the US|In America|In the USA|In the United States|In the States}, most jurisdictions {follow the|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, {even though it|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|a mortgage loan} always a mortgage', prepayment penalty, reconveyance, restrictive covenant, solus agreement, unconscionable bargain, undue influence, usury.

Note:

15-day FREE TRIAL of www.realestatedefined.com or subscribe with FREE copy of Third Edition.

Cases in italics are from {the UK|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

Keywords: {Equity of Redemption | Explained by Real Estate Defined|equity of redemption|equity of redemption by real estate defined|mortgage|mortgage deed|mortgagee|real estate|redemption|right of redemption|consolidation|once a mortgage always a mortgage|prepayment penalty|reconveyance|restrictive covenant|solus agreement|unconscionable bargain|undue influence|usury|mortgage terms|mortgage loan}

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