A Brief History of Mortgages from Canadian Funding Corp
Canadian Funding Corp Innovations offers a brief history of mortgages. What is this word “mortgage”? Why do some people’s eyes glaze over when they hear the word while others perk up?
Again, what is the origin of the word “mortgage”? The word “mortgage” comes from the French legal term meaning “dead pledge”. Sounds scary? Well there is something called a “live pledge”. What is the difference? A “dead pledge” was absolute in form. A “live pledge” was not conditionally dependent on its repayment solely from raising and selling crops or livestock or simply giving the crops and livestock raised on the mortgaged land. The mortgage debt remained in effect whether or not the land could successfully produce enough income to repay the debt. In theory, a mortgage required no further steps to be taken by the creditor, such as acceptance of crops and livestock in repayment.
The difficulty with this arrangement was that the lender was absolute owner of the property and could sell it or refuse to reconvey it to the borrower, who was in a weak position. Increasingly the courts of equity began to protect the borrower’s interests, so that a borrower came to have an absolute right to insist on reconveyance on redemption. This right of the borrower is known as the “equity of redemption”.
This arrangement, whereby the lender was in theory the absolute owner, but in practice had few of the practical rights of ownership, was seen in many jurisdictions as being awkwardly artificial. By statute the common law’s position was altered so that the mortgagor would retain ownership, but the mortgagee’s rights, such as foreclosure, the power of sale, and the right to take possession, would be protected.
In the United States, those states that have reformed the nature of mortgages in this way are known as lien states. A similar effect was achieved in England and Wales by the Law of Property Act 1925, which abolished mortgages by the conveyance of a fee simple.
If you are not getting it yet, Canadian Funding Corp urges you to read on to successive posts.
Meanwhile, courtesy of Canadian Funding Corp Innovations, a video!