There
are basically two types of mortgage – legal (Common Law) and equitable
mortgage. A mortgage as already defined above is a legal mortgage. Legal
mortgages involve execution under seal and the transfer of the legal title from
the mortgagor to the mortgagee, subject to the mortgagor’s right of redemption,
which is a right to a re-conveyance on payment of the mortgage monies in
accordance with the covenants in the mortgage.
Thus,
a legal mortgage is one that follows the formalities of the Common Law –
written down, signed, sealed and delivered, stamped, with governor’s consent.
Here, all the formalities and procedures must be strictly followed. A legal
mortgage generates revenue for the government. It is in a stronger position
than an equitable mortgage.
On
the other hand, an equitable mortgage is a contract which operates as a
security and is enforceable under the equitable jurisdiction of the court. It
is applicable to all property of which a legal mortgage can be made. Equitable
mortgage may result from an agreement to create a legal mortgage or a deposit
of title deeds with a memorandum of deposit, or even without a memorandum
provided such deposit constitutes an act of part performance.
A
legal mortgage of land gives the lender immediate rights against the land
itself whereas an equitable mortgage creates only personal rights against the
mortgagor and the lender cannot exercise rights over the land without an order
of court. Also, equitable mortgage can also be defeated by a subsequent
mortgage of the legal estate without notice of the prior equitable mortgage.
A
mortgage of land whether legal or equitable can be granted by an individual as
well as by a company, but if by a company it has to be registered at the
Corporate Affairs Commission within ninety days of its creation, otherwise the
mortgage will be void against the liquidator and any creditor of the company.