Equitable Mortgage

An equitable mortgage is one that does not fulfill the requisites of officially authorized credit finance against security, but still becomes effective through an agreement to generate a legal mortgage or by establishing an equitable charge that make repayment of the credit mandatory. In fact creation of the equitable charge does not transfer the ownership rights or custody of the property to the lender, but he or she is entitled to initial legal processes to recover the loan amount in case the borrower turns a defaulter.

Hence, a mortgage that offers the justice to recover the loan is the most widespread type of equitable mortgage vis-à-vis the real estate view point. Like the lender is able to recover the loan amount through a foreclosure or by selling the secured property, even the owner securing a credit against a property enjoys the right to recover the property and this may be done by transferring the interest to a mortgage in exchange of money. The ensuing mortgage offers means to more rights of redemption and this can be mortgaged again. The process is virtually a never ending one and may carry on for a period of time.

From the legal point of view, several consecutive equitable mortgages may be present on a single real estate and the owner keeps hold of the right to the ultimate equity of recovery to the last credit against security of the property availed by him or her. However, from the realistic point of view, the amount of equity available to mortgage eventually restricts the granting equitable mortgages. It may be mentioned here that if the initial mortgage is a officially permitted credit, then the subsequent mortgage will be against the ownership interest on the property. In such situations, the second mortgagee or creditor would definitely want to ensure that his or her advantages or profits are secure. Hence, the second mortgage holder or creditor enjoys two privileges that are mentioned below.

The right to make sure no default happens in the first mortgage

In the event of the borrower or mortgagor failing to make timely payments of taxes and insurance expenses, the second mortgagee has the right to pay these expenditures with a view to avoid any action against the borrower or the secured property by the first mortgagee. In such a situation, the second mortgagee will include the expenses incurred by him or her in credit amount of the subsequent mortgage. The second mortgagee is also entitled to initiate action against the borrower on the money borrowed initially as well as the expense made by the second mortgagee on the secured property provided the debtor turns defaulter.

The right to serve notices

In the event of the second mortgagee deciding to initiate actions such as foreclosure or confiscate the right to redeem a mortgage, he or she must not only undertake legal proceedings against the borrower, but also against all consequent persons, charges, claims, legal responsibilities or rules that are associated with and are obligatory vis-à-vis the secured property as only this will enable them to confiscate all ownership interests of the mortgagor. In such circumstances, the second mortgagees are required to inform all the succeeding encumbrances of the steps initiated by them and this will enable the encumbrances (read impediments) to undertake measures required to safeguard their respective interests in the property. Again, if the second mortgagee decides to sell the secured property using his or her ‘power of sale’, he or she is required to inform all succeeding encumbrances in the same manner.