Commercial Law, Prof. Siebrasse	Part 2.I

Part 2
Security Interests in Land
Section I
Introduction to Mortgages

1.	History of Mortgages of Land
a.	The form of a mortgage
i.	Traditionally a transfer of the fee simple either
(1)	With a covenant for reconveyance on payment of the debt, or
(2)	Defeasible on condition subsequent (payment of the debt)
ii.	This functioned effectively as a means for providing security for a loan
b.	Problem
i.	If the condition was not strictly met, the debtor lost his rights to the property
ii.	AND the debtor was still liable for the debt

2.	History of Mortgages of Land
a.	In the worst case, if a mortgagor was a day late in the final payment, she would not be entitled to recover her land, even though the debt had been paid off in its entirety
b.	The Courts of Equity were generally willing to provide relief in such cases

3.	History of Mortgages of Land
a.	The “equity of redemption” was the judicially imposed right to regain title to the land on payment of the debt, even after the contractual time for payment had passed
b.	It was this right which made a mortgage more than a simply contract
c.	The equity of redemption was eventually recognized as a right which could itself be sold or mortgaged

4.	History of Mortgages of Land
a.	Mortgage law is consumer protection law
i.	The right of redemption cannot be waived
b.	“No clogs on the equity of redemption”
i.	The prohibition on clogs or fetters on the equity of redemption follows directly from the nature of mortgage law as consumer protection law
ii.	The debtor cannot contract out of rules designed for her protection
5.	History of Mortgages of Land
a.	“Once a mortgage, always a mortgage”
i.	Substance over Form the application of mortgage law is determined by the substance of the transaction, not its form
ii.	Mortgage law requires such a rule or its consumer protection aspects can be evaded by changing the form of the contract

6.	History of Land Mortgages
a.	These rules, while necessary to make mortgage law effective, cause problems in some legitimate transactions
i.	E.g. a true sale with an option to repurchase
ii.	A mortgage with a lenders option to purchase
(1)	Such transactions may be effective in allocating risk of land value fluctuations

7.	Equitable Mortgages
a.	Equitable mortgages occur when no transfer of the legal title is involved
i.	E.g. a second mortgage
ii.	A legal mortgage with a formal defect
b.	There is no substantive difference between a legal mortgage and an equitable mortgage

8.	Disguised Mortgages
a.	A mortgage that looks like a sale
i.	A conveyance of the fee simple with an oral agreement to reconvey on payment of the debt
b.	A sale that looks like a mortgage
i.	A true sale with an option to repurchase

9.	Modern Form of a Mortgage
a.	In some jurisdictions the form of a mortgage remains traditional (e.g. N.B.)
b.	In other jurisdictions, a mortgage is legislative considered a charge
(1)	E.g. Ontario Land Registration Reform Act RSO 1990 c.L.4, s.6
c.	This has no effect on the rights and remedies
(1)	E.g. Ontario Land Registration Reform Act RSO 1990 c.L.4, s.6(3)