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.
Transfer by Mortgagor. - A mortgagor can transfer his equity of redemption to another.
If so, he conveys the land to the transferee in fee simple, subject to the mortgage debt.
He cannot, however, get rid of his liability to pay the debt under the covenant in the mortgage, except by consent of the mortgagee.
Hence, the transferee of the equity of redemption should covenant to pay the debt and indemnify the original mortgagor.
Transfer by Mortgagee. - A mortgagee can transfer his mortgage by conveying the legal estate to the transferee and assigning to him the benefit of the mortgage debt.
Notice of the transfer is given to the mortgagor, and he is then bound to pay the debt and interest to the transferee, but subject to the following rules.
(1) If the mortgagor pays the debt or interest to the transferor before he has notice of the transfer, the payment is good, and he cannot be called upon to pay again. This is obviously only fair to the mortgagor.
(2) The transferee takes the mortgage "subject to the state of accounts" -
I.e. he gets the benefit only of so much of the debt as has not been paid off: and if the debt has in fact been paid, the transferee gets nothing.
Hence it is rarely safe to take a transfer of a mortgage without the mortgagor being a party to the deed. It will then be clear that he had notice of the transfer, and the deed will state how much is still owing.
A mortgagee can mortgage his mortgage to another.
Thus, in the form on p. 224, Fitzgerald mortgaged land to Moses for £500, and conveyed the land to Moses, subject to a proviso for redemption. Moses now wishes to borrow £300 from C. Moses therefore conveys the land (subject to the proviso for redemption), and transfers the mortgage debt to C, subject to a new proviso by which Moses is enabled to redeem his mortgage on paying the £300 to C.
Thus a submortgage is a transfer of a mortgage to secure money lent to the mortgagee.