The most common form of equitable
mortgage from a real estate perspective is a
mortgage of the equity of redemption. If an
owner mortgages a property, he/she retains
the right to the equity of redemption. This
right, as an interest or estate, can be
dealt with as any other interest. More
importantly, this interest can be
transferred to a mortgagee in return for
funds. The subsequent mortgage gives way to
a further equity of redemption that can
again be mortgaged, and so on.
Legally, numerous successive equitable
mortgages can exist on the same property
with the owner retaining a final equity of
redemption to the last mortgage given. From
a practical perspective, the giving of
equitable mortgages will ultimately be
limited by the amount of equity available to
mortgage.
If the first mortgage is a legal
mortgage, the second is against the equity.
The second mortgagee, therefore, has a
desire to see his/her interest protected.
Two rights are associated with this
subsequent mortgage holder:
The right to ensure that no default
occurs in the first mortgage
If the mortgagor fails to make payments
on time, pay taxes, or insurance, the second
mortgagee may pay these to stave off action
by the first mortgagee. He/she will then add
these amounts to the debt of the respective
mortgage. Action could be taken on the
initial amount plus all other overdue
payments and expenses.
The right to be notified
If a mortgagee takes foreclosure action,
he/she must sue not just the mortgagor, but
all subsequent encumbrancers to successfully
foreclose all equities. The subsequent
encumbrancers are notified and can take
steps to protect their interests. If the
mortgagee proposes to sell under power of
sale, he/she must similarly notify all
subsequent encumbrancers.
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