Equity of redemption

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The equity of redemption refers to the right of a mortgagor in law to redeem his property once the liability secured by the mortgage has been discharged.

Historically, mortgages were made by the mortgagor executing a conveyance of legal title to the property in favour of the mortgagee, and the equity of redemption was referred to as the right to apply to the courts of equity to compel the mortgagee to re-transfer the property back to the mortgagee once the secured obligation had been performed.<ref>See Santley v Wilde [1899] 2 Ch 474</ref> Today most mortgages are granted by way of statutory charge rather than by a formal conveyance, although theoretically there is nothing to stop two parties executing a mortgage in the more traditional manner.<ref>Some countries have limited the grant of traditional mortgages by statute in some circumstances. For example, in the United Kingdom a mortgage of land may only be made by way of statutory charge, see sections 85-86 of the Law of Property Act 1925</ref>

Traditionally, the courts have been astute to ensure that the mortgagee did not introduce any artificial stipulations into the contractual arrangements to impede the mortgagor's ability to satisfy his obligations and reclaim his property. Such impediments came to be known as "clogs" on the equity of redemption, and the courts of equity were particularly astute to strike down any provision which was, or in later cases, which might be, a clog on the equity of redemption. Although such a pro-active judicial approach was probably appropriate in an era when lenders were notorious for refusing to reconvey the property if the mortgagor was even one day late making final payment,<ref>This problem was dealt with separately by the courts of equity by developing equitable reflief from forfeiture, for mortgagors and other people who were vulnerable to having their strict legal rights terminated "unfairly"</ref> they later came to cause problems of their own. Where collateral is hypothecated in prime brokerage transactions, it is quite common for the broker to rehypothecate the collateral, but concerns remained that because the rehypothecation might, theoretically mean that the lender might lose title to the collateral themselves, and thereby be unable to reconvey it to the primary customer, it was speculated that such rehypothecation might be unlawful. Happily, the tide has for some years now turned against striking down every clause in a mortgage document that might conceivably impede the right to redeem.<ref>The tide began to turn in Biggs v. Hoddinott [1898] 2 Ch 307, where it was held that, in a brewery mortgage case, that a covenant to take beer from the mortgagee limited to the continuance of the security did not clog the equity of redemption, it being generally realised that an extreme response to perceived clogs undermined the commercial arrangements of the parties.</ref>

The equity of redemption is itself recognised as a separate species of property, and can be bought, sold or even itself mortgaged by the holder.

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