EQUITABLE MORTGAGE VS REGISTERED MORTGAGE: KNOW THE DIFFERENCE

Equitable Mortgage vs Registered Mortgage: Know the Difference

When it comes to securing a loan or mortgage for a property, understanding the different types of mortgages is essential. Two common terms you’ll encounter are “equitable mortgage” and “registered mortgage.” While both serve the purpose of securing a loan against a property, they have distinct features and implications. Let’s delve into the key differences between these two types of mortgages.

Equitable Mortgage:

An equitable mortgage is a type of mortgage that is based on the principle of equity, which refers to the interest or value that a person has in a property. In an equitable mortgage, the borrower transfers the legal ownership of the property to the lender as security for the loan. However, unlike a registered mortgage, the transfer of ownership is not officially recorded with the government or a public registry.

Key Features of Equitable Mortgage:

1. Creation: Equitable mortgages are often created through an agreement between the borrower and the lender, where the borrower essentially entrusts the lender with the property title deeds.
2. Legal Ownership: While legal ownership is transferred to the lender, the borrower retains the right to redeem the property by repaying the loan as per the agreed terms.
3. Priority: The priority of an equitable mortgage is determined based on the principle of “first in time, first in right.” This means that if multiple equitable mortgages exist on the same property, the one created or registered first will have a higher claim in case of default.
4. Enforcement: In the event of default, the lender can take legal action to sell the property to recover the outstanding loan amount.

Registered Mortgage:

A registered mortgage, also known as a legal mortgage, is a mortgage that is officially recorded with a government agency or public registry. This type of mortgage provides a clear and enforceable legal claim to the lender in case the borrower defaults on the loan.

Key Features of Registered Mortgage:

1. Formal Registration: A registered mortgage involves a formal registration process with the relevant government agency, usually the land registry. This registration provides legal documentation of the lender’s interest in the property.
2. Priority: In the case of multiple registered mortgages on the same property, the priority is determined by the order of registration. The first registered mortgage holds a higher priority.
3. Public Notice: Since the mortgage is registered in a public registry, it serves as public notice of the lender’s interest in the property. This helps prevent subsequent buyers from purchasing the property without knowledge of the existing mortgage.
4. Enforcement: In case of default, the lender can initiate foreclosure proceedings as per the legal framework of the jurisdiction. The property can be sold, and the lender can recover the outstanding debt from the proceeds.

In conclusion, the primary difference between equitable and registered mortgages lies in their legal status and documentation. Equitable mortgages rely on the principle of equity and are created through agreements between parties, while registered mortgages are formalized through government registration processes, providing stronger legal protection for lenders. It’s crucial for borrowers and lenders alike to understand these differences and choose the appropriate type of mortgage based on their specific needs and legal requirements. Consulting legal and financial professionals is highly recommended to navigate the complexities of property transactions and mortgages.