What is the difference between equitable mortgage and registered mortgage?

Answer 1

A registered mortgage is a transaction whereby the borrower executes a formal written instrument that can be construed as a conveyance of their interest in land as security for a loan. The written instrument is recorded in the land records as a conveyance or a lien against the land. If the loan is not repaid, the lender can take possession of the land. If the loan is repaid, the rights granted to the lender under the mortgage are extinguished and the lender must release their interest to clear the title to the land. In many jurisdictions this is simply referred to as a mortgage or a deed of trust.

An equitable mortgage is an arrangement that involves borrowing money with the understanding the borrower's land will secure the loan or some other situation where a lien on the owner's real estate is implied by some credit arrangement. However, a formal mortgage document is not executed and recorded in the land records. It can arise under different circumstances and can also be referred to as an implied or constructivemortgage. A problem with equitable mortgages is that there is no notice to the public in the land records in most cases and the property could be sold without the loan being paid. Generally, if an equitable mortgage is not paid it must be enforced in a court of equity by a court decree against the debtor.

Examples of equitable mortgages:

1.) Charlie found himself in financial trouble after losing his job. He informed his friend, Stewart, of the situation by email and they discussed a loan whereby Charlie offered to place his home as collateral and repay the loan as soon as he found a new job. Stewart accepted the offer and sent a check but a formal mortgage was never executed and recorded in the land records. Stewart would have an equitable mortgage against Charlie's property.

Once Charlie found a new position that was better than his old job, he ignored Stewart's requests for payment. Stewart could enforce his equitable mortgage in court as long as he kept copies of those emails and the check. The court would grant a judgment lien that could be recorded in the land records and Charlie could not sell or mortgage the property until the lien was paid. However, if Charlie had executed a recorded or registered mortgage with a bank since that loan from Stewart and the bank mortgage was foreclosed, the foreclosure would wipe out Stewart's judgment lien against the real estate and Stewart would be back where he started trying to get his money from Charlie.

2.) A husband is to retain the marital home under a separation agreement in a divorce. His wife is to execute a deed that conveys her interest to him and he is to refinance the property in his name and pay his wife $50,000 for her interest within six months. The wife in this case has a $50,000 equitable mortgage on that property. If husband instead tried to sell the property without following the agreement, the constructive mortgage would be disclosed during the title exam performed for the buyer and the wife would be paid from the proceeds at the closing. Probate and Family Court records are part of the public records that must be examined by a title examiner during the course of a title exam for real estate.

On the other hand, if the husband continued to live in the property and simply ignored the separation agreement, the ex-wife could enforce her right to the $50,000 in court.