LAND LAW 2.9 MORTGAGES; PROTECTION OF SECURITY
Mortgagee generally has legal interest and mortgagor has equitable interest (by equity of redemption). If mortgagee dies, his Personal representatives enter his shoes.
A mortgagee is not a trustee… rather he is one with adverse interest. For the following reasons:
– The power of entry into possession which a legal mortgagee possesses may amount to breach of trust if such power is exercised by a trustee.
– After the prescribed limitation period (12 years), a mortgagee in possession can acquire title and the equity of redemption may be extinguished. (as was seen in Federal Administrator General V Cardoso where the mortgagee was barred due to lapse of time). This cannot be the case for a trustee as a trustee in possession cannot acquire title. Note however that where there is a written acknowledgement of the existence of the mortgage, the countdown is reset and the time starts to count again from the date of acknowledgment.
– A mortgagee may purchase the equity of redemption but a trustee cannot purchase the cestui qui trust property.
Since the mortgaged property is the security for the loan (i.e. it guarantees that the loan would be repaid. Else the creditor (mortgagee) can use the property to offset the debt).
The mortgagee protects the security by;
– Ensuring that title conveyed is not defective: if the mortgagee gets a defective title, he is on his own.
– Securing against wasteful or interfering acts of the mortgagor or third parties. He can seek an injunction to prohibit such acts which threaten his interest in the property-London and County Banking V Sewel.
Where the mortgaged property is land and the interest therein is revoked under Section 28 and 29 LUA, compensation for “unexhausted improvements” shall be paid to the “holder”. (Note that where the revocation is punitive, compensation would not be paid). From the interpretation of Section 51 it appears that the “holder” is the mortgagor. However, the mortgagee can secure his interest by contracting with the mortgagor that such compensation shall be paid to him. The courts may also do justice in deserving circumstances.
:: Right of Ownership: The mortgagor remains the “real” owner and has the equity of redemption. He can still exercise some right of ownership (like leasing and enjoying the rent without accounting to the mortgagee-Trent V Hunt) (provided same is reserved in the agreement). see Ex parte Williams. Where the mortgage debt becomes due, the mortgagee may in writing apply to be collecting the rent (formerly payable to the mortgagor) and be using the rent to offset the mortgage debt.
:: The mortgagor can enforce covenants in the lease-Section 10, Conveyancing Act.
:: A mortgagee in possession is liable to account to the mortgagor for profits made from the property while being in possession (this discourages the mortgagee from entering into possession).
:: Right to have the mortgaged property reconveyed back to him upon the repayment of the principal sum and interests.
:: The mortgagor as equitable owner is entitled to equitable remedies to protect the property like injunction to restrain third parties from injuring his interest.
:: Equitable right of redemption: (once a mortgage, always a mortgage) this right allows the mortgagor to discharge his responsibilities notwithstanding that the due time has passed. This he can exercise before foreclosure and lapse of time. This right cannot be waived or contracted out… notwithstanding the wording of any agreement which seeks to circumvent the principle or frustrate the right of redemption. A covenant which imposes a penalty (or increases the rate of interest) on the mortgagor for failure to redeem on the due date is void-Allingford V Mutual Society. A collateral advantage which seeks to clog the equity of redemption is void-Noakes V Rice. A grant of right to purchase is also void because this undermines his equity of redemption.