Equitable mortgage

A transaction that has the intent but not the form of mortgage, that a court of equity will treat as a mortgage. Under an equitable mortgage, the mortgagee does not acquire a legal interest in the mortgaged property, either because the mortgagor’s original interest was merely equitable, or because although a mortgagor had legal title, the mortgage was created informally by the deposit of the title deeds.

An equitable mortgage is unregistered and is not a charge on the land. Instead, it serves as the representation of a promise by the borrower to reserve the relevant equity in the property for the lender when the property is sold. Equitable mortgages are enforceable only through the principles of equity, and need not be registered before it is enforced. Enforcement proceedings are brought in the Equity Division of the Supreme Court and default judgment is by way of Notice of Motion.

“Courts of equity are not governed by the same principles as courts of law in determining whether a mortgage has been created and generally, whenever a transaction resolves itself into a security, or an offer or attempt to pledge land as security for a debtor liability, equity will treat it as a mortgage, without regard to the form it may assume, or the name the parties may choose to give it. The threshold issue in an action seeking imposition of an equitable mortgage is whether the plaintiff has an adequate remedy at law. In applying the doctrine of equitable mortgages doubts are resolved in favour of the transaction being a mortgage.” – CJS ‘Mortgages’ 12, at 62 (1998).