Mortgage

Mortgage (an old French legal word, meaning "dead pledge," translated in medieval Latin mortuum vadium),' the securing "money or money's worth" by making it a charge upon property, real or personal, so that if the debt be not paid by a time agreed upon by the parties, the creditor may foreclose or sell the property and pay himself out of the proceeds. In English law this is done by an actual or executory conveyance of the property to the creditor, subject only to its being defeated if the debt should be paid at the time fixed - an arrangement to which the law has attached peculiar incidents designed to carry out its real object.

The history of mortgage transactions in Roman law shows three well-marked stages. In the beginning the estate was conveyed absolutely to the creditor, who made a covenant (fiducia) to reconvey it when the debt should be paid. All the interest, however, in the meantime passed from the debtor to the creditor, and should the latter refuse to reconvey there was no remedy to the original owner except a personal action. In the second stage (that of pignus) the property did not pass to the creditor; he merely received possession of the thing pledged, together with certain rights of sale, &c., in the event of payment not being made at the time appointed. Lastly, without parting with the possession even of the pledge the debtor could create a lien or charge (hypotheca) over it in favour of the creditor, who 1 Coke on Littleton gives the following explanation of the meaning: "It seemeth that the cause why it is called mortgage is, for that it is doubtful whether the feoffor will pay at the day limited such summe or not, and if he doth not pay, then the land which is put in pledge upon condition for the payment of the money is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the tenant, &c." acquired thereby a right on failure of payment to follow the thing by real action against the possessor, whosoever he might be, and to repay himself from the proceeds of his sale.

The mortgage of English law is the result of two distinct influences. Its origin and form belong to the common law; the restrictions by which it is made to serve the purpose of a security only, and nothing more, belong to the courts of equity. In the eye of the common law the mortgagee was the owner of the estate conveyed in the mortgage; in equity the mortgagor remains the real owner, and the mortgagee is merely an encumbrancer. A, the owner of land in freehold, conveys to B and his heirs, with a proviso that on repayment of money lent by B to A, on a future day, with interest until payment, B or his heirs will reconvey the estate to A and his heirs, and that, until default be made in payment, A and his heirs may hold without interruption from B and his heirs. This is a common mortgage of land, and at law, after failure of payment, the land belonged absolutely to the mortgagee, while in the meantime, before payment, the legal estate was considered to be vested in him, subject only to being defeated by payment at the proper time. The court of chancery first interfered in the reign of James I. to decree a redemption after forfeiture, and a case in the reign of Charles I. decides that payment after forfeiture has the same effect as payment before. The right of the mortgagor to redeem his estate after it has been forfeited, according to the terms of the deed, is called his equity of redemption. No agreement between the parties was suffered to oust the jurisdiction of the court, or to deprive the debtor of his equity of redemption. And this equity, at first regarded as a mere right of the debtor, became established in course of time as an estate in land which descended to the heirs of the mortgagor. On the other hand, the interest of the mortgagee is part of his personal estate, and passes to his executor and not to his heir. In spite of the terms of the mortgage, the owner of the land is still the owner, and the mortgagee is a creditor for the money he advanced and the interest thereon. It may be a question whether a given deed is a conveyance or a mortgage, and the court, in deciding, will look at all the circumstances of the case, and will treat it as a mortgage when it was the real intention of the parties that it should operate as a security only. Thus, if the price was grossly inadequate, if the purchaser was not let into immediate possession, if he accounted for the rents to the grantor, retaining an amount equivalent to interest, if the expense of the deed was borne by the grantor, there would be reason to believe that the conveyance was only meant to be a mortgage. And "once a mortgage, always a mortgage"; no subsequent agreements can change its character.

A mortgagee may, however, on default of payment file a bill of foreclosure requiring the mortgagor to pay the amount of the debt with interests or costs by an appointed day, or submit to be deprived of his equity of redemption. The effect of failure to pay by the time appointed would be to make the mortgagee absolute owner of the estate; but the court in any foreclosure suit may, at the request of either side, order a sale instead of a foreclosure. And a power of sale is now implied as one of the incidents of the mortgage, unless forbidden or varied by express destination. The mortgagee is entitled to retain out of the proceeds of the sale the amount of his principal, interest and costs, the surplus belonging to the mortgagor. A mortgagor cannot require the creditor to receive payment before the time appointed in the deed; and, on default of payment at the appointed time, he must give the creditor six months' notice of his intention to pay off the mortgage, so that the creditor may have time "to look out for a fresh security for his money." When the same land is successively mortgaged to different persons, their rights take priority according to their chronological order. But the operation of equitable doctrines in the formation of the law of mortgage leads to an important modification of this rule. Of the successive mortgagees, the first only takes the legal estate, and this, according to the maxim of the court of chancery, will turn the scale when there is an equality of equitable rights between two contracting parties. Thus, if the third mortgagee had no notice at the time of making his advance of the existence of the second mortgagee, the equities of the two claimants are supposed to be equal, and if nothing else intervened priority of time would decide the order of their rights. But if the third mortgagee gets an assignment of the first mortgage, he can tack his third mortgage to the first, and so postpone the second mortgagee. And if the first mortgagee himself makes an additional advance after the date of the second mortgage, but without notice of it, his whole debt will take precedence of the second mortgage. A similar result of equitable rules is seen in the consolidation of securities. Two separate estates, mortgaged at different times and for different sums of money by the same mortgagor to the same mortgagee, are regarded as consolidated, so that the whole of the land becomes security for the whole of the money, and the owner cannot redeem either mortgage without redeeming the other. If the mortgagor should have mortgaged another estate for more than its value, the holder of the deficient security may buy in the first mortgage, consolidate it with his own, and exclude the second mortgagee.

An equitable mortgage is constituted simply by the deposit of title-deeds in security for money advanced. The enactment of the Statute of Frauds that no action shall be brought on "any contract or sale of lands," &c., or any interests in or concerning them unless the agreement be in writing and signed by the party to be charged, has been cited as incompatible with the recognition of equitable mortgages, but it is argued by Lord Abinger that the act was never meant to affect such a transaction. The deeds which are the evidence of title could not be recovered in an action at law, and, if they were claimed in equity, the court would require the claimant to do equity by repaying the money borrowed on the deposit. Any subsequent legal mortgagee, having notice of the deposit, will be postponed to the equitable mortgagee, and when the legal mortgagee has not inquired as to the title-deeds the court will impute to him such knowledge as he would have acquired if he had made inquiry. A Welsh mortgage is one in which an estate is conveyed to a creditor, who takes the rents and profits in lieu of interest and without account, the estate being redeemable at any time on payment of the principal. Any form of property, with few exceptions, may be mortgaged.

In the United States there has been express legislation dealing with mortgages of land in most of the states. For the most part legislation has followed the lines of the English law, but there is a great variation in the extent to which the principles of equity have been substituted for the rules of common law. In some states, the mortgage deed is held to create a seizin of and an estate in the premises, with all its common law incidents, to be enforced if need be by ejectment. In others, the mortgagee's rights are limited to such as the rules of equity prescribe, and may not be enforced by a suit at law. In yet others, the mortgagee's interest is not deemed an estate at all, but is here only to be enforced by the sale of the premises as a means of paying the debt.

See Fisher on Mortgages; Coote on Mortgages; Ashburner on Mortgages; L. A. Jones, Treatise on the Law of Corporate Bonds and Mortgages (Indianapolis, 1907).