This section is from the book "Real Property, An Introductory Explanation Of The Law Relating To Land", by Alfred F Topham. Also available from Amazon: The New Law Of Property.
A mortgage is a transaction by which a tenant of land can borrow money on the security of his land.
The borrower is called the mortgagor.
The lender is called the mortgagee.
The safest and most usual form of mortgage of land is a legal mortgage in which the legal estate is conveyed to the mortgagee (lender), but the mortgagor (borrower) is allowed to remain in possession, and the mortgage is treated merely as a security for the money lent.
The position of a mortgagor is curious, and can only be explained by reference to the history of the law.
At Common Law. - The borrower conveyed his land absolutely to the lender, but subject to a proviso that if the borrower repaid the money within six months with interest the lender would re-convey the land to the borrower.
If the money was not re-paid within the six months, the land belonged absolutely to the lender.
In Equity. - It was considered unfair that the lender should lose his land entirely if he failed to pay within the six months, and equity would compel the lender to re-convey the land if the money was re-paid with interest even after the six months.
The result is that, after the first six months, though the lender has an absolute estate at law, the borrower can always get his property back on payment of the amount lent with interest.
When money is lent on mortgage it is not usually intended to be re-paid within six months, but is intended as a permanent investment, the lender, however, relies on the equitable rule and conveys his land in the old Common Law form.
A summary of this form will be found on the following page.
FORM OF A MORTGAGE
This is not intended as a precedent, but is merely an outline of an ordinary mortgage. A full form of mortgage deed will be found on p. 326.
THIS INDENTURE made the 6th day of March, 1907.
Between Archibald Fitzgerald, of No. 273, St. James Street, in the County of London, Esquire (the mortgagor), of the one part and Louis Moses, 162, Furnival Street, in the City of London, gentleman (the mortgagee), of the other part.
Whereas A. Fitzgerald is seised in fee simple of the land hereinafter described,
And whereas L. Moses has agreed to lend him £500,
Now this Indenture witnesseth that A. Fitzgerald covenants to repay the £500 with interest at 4 per cent. per annum on the 6th of September, 1907.
And this Indenture also witnesseth that in consideration of the sum of £500 now paid by L. Moses to A. Fitzgerald (the receipt whereof A. Fitzgerald acknowledges) A. Fitzgerald, as beneficial owner, hereby conveys to L. Moses
All that freehold house known as "Woodside," situated, etc.
To hold the same unto and to the use of L. Moses in fee simple.
Provided always that if A. Fitzgerald shall repay to L. Moses £500 with interest at the rate aforesaid on the 6th of September, 1907, L. Moses will reconvey the said land to A. Fitzgerald.
In witness, etc.
Note, that Fitzgerald covenants to pay the money, and then conveys the land, and there is nothing to show that he is entitled to get his land back after the expiration of the six months.
Any student with a knowledge of Roman Law will see that this corresponds to the Roman contract of Fiducia, in which the borrower transferred the property in his goods to the lender subject to a fiducia or trust that they should be re-transferred when the money was repaid.
Even after the six months has expired the borrower is allowed to "redeem" his land on paying the principal money and interest. This right is called an "equity of redemption," and the borrower cannot be deprived of it without an order of the Court.
The equitable rule of course prevails since the Judicature Act, and therefore the consequence of a mortgage deed is that the mortgagee holds the land merely as security for the money lent until he takes proper steps to realize his security.