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Equity of Redemption

Equity of Redemption speaks about the rights of the mortgager according to law. The law enables the mortgager to secure the property he owns once the liability that is secured by the mortgage is discharged. Normally the borrower or mortgager and lender or mortgagee as a security of loan executes a conveyance of legal title to the property.

Once the loan is repaid, the mortgagee returns the property or else he will keep the property with himself as an alternative for debt. Equity of redemption gives rights to the borrower to petition in the courts of equity that compels the lender to transfer and return back the property to the borrower once the loan is repaid and secured operation is performed.

The mortgager can make use of the Equity of Redemption within stipulated time period after he or she has defaulted on an obligation. This time span is in between time of default to the time of during which foreclosure procedures commenced. More importantly the courts are extremely astute to safeguard the interest of the mortgager in such a way that the lender does not introduce or include any unwanted artificial stipulations and clauses in the contractual agreement which impede the borrower’s ability to satisfy and fulfill the obligations to reclaim their properties.

These impediments are known as clogs on the equity of redemption and courts of equity are astute and wise enough to strike down any provision or clause, which might at later stages, become clog. These laws have their own advantages and disadvantages. Even though courts framed these laws to protect and safeguard the interests of the borrowers as in these days more and more lenders have earned a reputation of being notorious by refusing to return and reconvey the borrower’s property even if the payment is late for one day, they are now creating some unforeseen problems.

Many times it is common for the mortgagee or broker to rehypothecate the collateral when the collateral is hypothecated in transactions of prime brokerage. This may result in lender losing the title to the collateral that in turn resulting in being unable to recover the property to the main customer. Many of these rehypothecations are considered illegal and unlawful.

Recognized and considered as separate property species altogether, the equity of redemption itself can be sold, bought or even can be mortgaged by the person possessing and holding it. If the mortgager or borrower breaches the terms of repayment, then the equity of redemption will expire naturally and becomes redundant. So the borrower should be careful that he or she adheres to the repayment terms and do not violate them which ultimately results in non recovery of his or her rightfully owned collateral property.

In the present circumstances for leaving the absolute title of the property with the mortgagee along with the extinguishing of the equity of redemption requires court order in almost all states jurisdictions. The courts most frequently orders judicial sale of the property even when seeks order for foreclosure from the courts of equity.

Tags: collateral, law, Legal, loan, mortgage

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