Rights of the mortgagor

The mortgagor’s right to redeem

The most important right of a mortgagor (the borrower) is the right to redeem the mortgage on repayment of the loan, together with payment of any interest on the mortgage.

Right to redeem at law

At law, the right to redeem is a matter of contract: the mortgagor can redeem the mortgage on the date/s and in the manner required under the mortgage agreement. If the agreement provides that the mortgage must be redeemed on a particular date, the mortgagor must legally redeem the mortgage on that day. The mortgagor cannot insist on redeeming the mortgage either before or after the contractual date.

At common law, if the mortgagor did not pay on the contractual date, the mortgagor would traditionally forfeit the land to the mortgagee (the lender) and be sued in contract for repayment of the debt. Therefore, the legal right to redeem is limited.

Right to redeem in equity

Fortunately, equity (fairness) stepped in: as the purpose of a mortgage agreement is simply to provide the mortgagee with security for the loan, equity took the view that so long as the advance and any interest was repaid, the mortgagee should not be able to object to redemption.

Traditionally, equity intervened only in cases of fraud by the mortgagee. However, equity soon came to recognise a general right to redeem in all cases (Salt v Marquess of Northampton [1892] AC 1). Today, equity allows the mortgagor to redeem the mortgage even after the date fixed by the mortgage agreement for repayment has passed.

Since this right is an equitable right only, it is subject to the general principle that equitable remedies are discretionary in nature. In deciding whether redemption is possible, equity will look at the substance of the agreement, not its form. Accordingly, a mortgage drafted to look like an actual transfer of the property (rather than the creation of a secured charge), will still be subject to the equitable right to redeem if the facts show only a grant by way of security was intended.

Instalment mortgages

Modern mortgages typically allow for instalment repayments spread over a number of years. However, the mortgage agreement will usually provide that if the mortgagor defaults on the payment of one instalment – the whole sum will become due. In law, the mortgagor may then have to redeem the mortgage or lose the property, but equity will moderate the rigour of this in the way described above

The equity of redemption

The mortgagor has a statutory right of redemption – known as the ‘equity of redemption’ which is distinguishable from the equitable right to redeem. On creation of the mortgage, the mortgagee becomes the legal owner of the land subject to the mortgagor’s equitable interest.

The equity of redemption is the mortgagor’s equitable interest in the property which is the sum total of the mortgagor’s rights in relation to the land (including the right to redeem). The equity of redemption is therefore an interest in land and can be dealt with like any other equitable interest.

Right to grant leases

The mortgagor has a statutory power under section 99 of the Law of Property Act 1925 (LPA) to lease the property. If the mortgagor is in possession of the land they may create both leases and contracts for leases which will be binding on the mortgagee. Note that s99 sets out a number of detailed requirements for the form and content of such leases.

Right to sue

In some cases, the rights of the mortgagor to sue in relation to land could theoretically be hampered by the fact that the property and land is subject to the rights of the mortgagee. Any such problems are remedied by section 98 of the LPA which allows a mortgagor in possession, who has not been notified that the mortgagee intends to take possession, to sue in a number of situations in which there might otherwise be difficulties. This means the mortgagor may be able to bring any necessary action in relation to the land.

Note that a mortgagor has power under section 100 of the LPA to accept surrenders of leases. This may be done, however, only to replace the surrender lease with a new lease. The new lease must be made within one month of the termination of the old lease.