Equity of redemption Flashcards
What is the equitable right to redeem
Equitable principles that protect the borrower from the lender
Protects the borrower from clauses postponing or preventing redemption of mortgage, collateral advantages and unconscionable terms
equity of redemption has a financial value which is the market value of the home less the outstanding debt
what are the 4 rights under the equity of redemption
Supplement the legal right to redeem
No postponement or prevention of redemption
No collateral advantages
No unconscionable terms
What is behind the principle of no postponement or prevention of redemption?
the equitable right to redeem ARISES THE FOLLOWING DAY AFTER THE REDEMPTION DATE
Court will not allow a clause that prevents the redemption altogether but may allow the lender to postpone a little.
What is the option to purchase?
The mortgage may include an option for the lender to purchase the mortgage property
A proprietary right for the lender to require the borrower to transfer the property at some time in the future
equity will strike such terms down in domestic cases because the borrower loses the right to redeem the property back and free of the loan
If the option is granted separate to a mortgage it can be upheld
if the mortgage and the option are granted separate but on the same day, the option can be upheld
What is a collateral advantage?
Lender is only entitled to the repayment of capital advancement and interest
He cannot extract any additional value from the borrower - collateral advantage
a collateral advantage will be struck out if it is unconscionable or if it is repugnant to the equitable right to redeem
What is a solus tie and is it allowed?
Type of collateral advantage
eg a beer tie
if a lender is a brewery and borrower a pub, the lender may impose that the pub buys beer from the brewer
Generally allowed if they end within the mortgage term - if it exceeds the mortgage term it will be void
What power do courts have re unconscionable terms?
Can strike them out
term has to be more than unfair or unreasonable
eg charging very high interests rates by exploiting someones position of being at risk of homelessness = unconscionable term
When is a mortgage term unconscionable?
Multiservice Bookbinding v Marden
If it was imposed in a morally reprehensible manner which affects the lender’s conscience
What are statutory regime case principles regarding unconscionable terms?
If a penalty interest rate imposed in the event of default is much higher that the lender’s loss then the term will be void
Higher interest can be justified if the borrower is a credit risk
Lender can increase interest rates if he is in financial difficulties himself providing it is not exercising any discretion for an improper use - and needs to take into account own commercial circumstances
