EARLY VIEW AND HISTORY. A real estate mortgage at common law was a conveyance of the legal title subject to a condition subsequent that the mortgagor might revest the title in himself by paying a debt or performing other obligation at a time stated. The courts of equity permitted redemption notwithstanding breach of condition.
(1) Common law view of mortgage.
A common law mortgage was a deed to property conveying the fee to the mortgagee; subject, however, to a condition that the title should revest in the mortgagor upon his performance of an obligation therein stated. This condition had to be literally performed in order to entitle the mortgagor to his former estate. The condition was usually of course to pay a debt which matured on a certain day. If the day passed without the condition being performed or tendered, the title thereafter became absolute. The time for the condition having elapsed, it could not be performed.
The courts of law enforced these provisions of the mortgage literally.
The day on which the condition was to be performed came to be called the "law day," the day on which in the law court the title became absolute.
(2) Equity of redemption.
The result of the strict enforcement of a mortgage was of great harshness to the mortgagor. He would thereby lose his estate through his inability to pay, notwithstanding it might be many times more valuable than the indebtedness. The mortgagee would thereby obtain the repayment of his debt many times over and become unjustly enriched by a loan of money on which he never took any risk. It may be said that the mortgagor should never make such a bargain and if he did it was his own folly, but this overlooks the fact that the terms of a loan cannot be dictated by a necessitous borrower. Courts of equity disfavor harsh penalties and forfeitures. They therefore permitted a mortgagor after condition broken to file a bill for redemption of his estate upon his payment of the debt. Under the common law view the transaction was what it literally purported to be - a conveyance on condition. But courts of equity, looking beyond the form saw that the transaction was really one of indebtedness, with the conveyance as security. The mortgagor did not go to the mortgagee to sell his property. He went to barrow money. The amount of money he got was not an agreed purchase price; it was simply money borrowed, perhaps much less than the property was salable for. The injustice of enforcing the mortgage in its strict literalness to cut the mortgagor off by his nonpayment on the law day led to the relief stated. From the fact that a mortgagor had this relief in equity, his estate came to be called his "equity," or "equity of redemption" - words which we use today, although his interest is now the legal title.
(3) Foreclosure of equity.
The fact that the court would entertain a bill for redemption by the mortgagor, laid a cloud on the mortgagee's title after the law day passed. He could not alienate for there was ever the possibility that the mortgagor might redeem. Hence in case the mortgagor did not redeem, the mortgagee appealed to the court to compel him to redeem, or be forever barred and foreclosed of his equity of redemption. The court would therefore enter a decree giving the mortgagor a specified time in which to redeem, otherwise to be barred of his right to redeem. By this process, the mortgagee's title became absolute.
It will be noticed that by this foreclosure proceeding the mortgagor lost his estate, as completely as under the legal theory, and the mortgagee became entitled thereto regardless of the excess value over the debt unless the mortgagor redeemed within the time granted by the court. In other words, the court did not work out its equitable view to its logical and just conclusion. It remained for that to be done by future development of the equitable idea.85
The modern view of a mortgage is that it is a conveyance in security for a debt, the debt being the main thing and the mortgage merely incidental thereto.
In modern days we regard the mortgage as a lien though in form it is still a conditional conveyance conveying the fee, but for practical purposes it is merely a lien by which one secures payment of his debt and no more. The debt is regarded as the main thing and the conveyance a mere shadow thereof without existence apart from the debt.86 When foreclosure is had, the mortgagor is not barred but a public sale is conducted and the debt paid out of the proceeds, the surplus being rendered to the mortgagor after deduction of the proper expenses incidental to the sale. Where the mortgagee is still regarded as having legal title, he has it only for the limited purpose of his security. The mortgagor as to all the world has the legal title. He can convey, subject to the mortgage and his wife has dower in the equity.
85. See Pomeroy, Chapter Fifth.
86. Lightcap v. Bradley, 186 111. 510.