INTRODUCTION

To understand how loans are secured against properties, it’s important to distinguish between
equitable and legal mortgages. These distinctions include formal documentation, registration
procedures, loan proof, enforcement measures, public visibility, associated dangers, and
typical usage scenarios. Equitable mortgages, which rely on informal agreements, differ from
legal mortgages, which require formal mortgage documents and registration with government
authorities. Each type provides various benefits and considerations for both lenders and
borrowers, influencing its prominence and use in real estate transactions.
It is very important to understand the in-depth meaning of mortgage, equitable mortgage and
legal mortgage before we can proceed to state the differences between equitable mortgage
and legal mortgage.

What Is a Mortgage?
A mortgage is a type of loan used to purchase or maintain a home, plot of land, or other types
of real estate. The borrower agrees to pay the lender over time, typically in a series of regular
payments that are divided into principal and interest. The property then serves as collateral to
secure the loan.
A borrower must apply for a mortgage through their preferred lender and ensure that they
meet several requirements, including minimum credit scores and down payments. Mortgage
applications go through a rigorous underwriting process before they reach the closing phase.

Equitable Mortgage
The word “equitable” is derived from the word “equity”, which simply means in the interest
of justice. An equitable mortgage arises out of a transaction that has the intent but not a form
of a formal mortgage that the Courts nevertheless will treat as a mortgage. Under this regime,
the lender does not acquire a legal interest in the mortgaged property because the borrower’s
initial interest in the property is equitable or the borrower has legal interest but a mortgage
was created informally by a deposit of the title transfers/deeds (i.e., if the borrower owns a
piece of land or property, they can pledge it as security by giving the lender the title-deed to
the property. This means that if the borrower cannot repay the loan, the lender can take
ownership of the property).
An equitable mortgage is unregistered and does not form a secured interest against a
property. It merely represents a promise by the borrower to reserve the relevant equity in the
property for the lender when the property is sold. This arrangement should be evidenced
through a written agreement between the borrower and the lender outlining certain
contractual obligations binding both parties. This type of mortgage is enforceable through the
principles of equity and does not require registration before it can be enforced. Enforcement
proceedings are brought via a motion in the Superior Court of Justice. The intention of the
parties is a crucial component that the Courts will look at to determine if an equitable
mortgage has been created and whether it is enforceable.

Legal Mortgage
A legal mortgage is a conveyance of land or assignment of property as a security for the
repayment of a debt or the discharge of other obligations for which it is given, with a proviso
for redemption (subject to the condition that the title shall be re-conveyed) once the mortgage
debt is paid.
A legal mortgage is a type of mortgage in which the lender registers a secured interest against
the property title. Such an interest is registered via the Land Registry Office under whose
jurisdiction the property is situated and requires the assistance of a lawyer. Once registration
is completed, it gives the lender priority to recover the loan amount over unsecured creditors
in the event that the purchaser defaults in payment of the loan.
Parties to a legal mortgage are known as mortgagor(borrower) and mortgagee(lender). The
legal mortgage must be in writing in the form of a deed (deed of the legal mortgage), this is
because it is a legal transaction affecting title to land.

DIFFERENCES BETWEEN EQUITABLE MORTGAGE AND LEGAL

MORTGAGE
The differences between equitable mortgage and legal mortgage could be classified into the
following;
1. Proof of loan
2. Formal documentation
3. Registration
4. Visibility
5. Enforcement
6. Common usage
7. Risk

Proof of loan:
 Equitable mortgage often relies on oral or written agreements as proof of the loan’s
existence. Though these agreements may be legally binding, they may lack the
concrete documentation provided by a formal mortgage deed.
 In legal mortgage the mortgage deed itself serves as concrete proof of the loan’s
existence and terms. This document outlines the rights and obligations of both the
borrower and lender, providing a clear record of the mortgage agreement.

Formal documentation:
 Equitable mortgages are based on an informal agreement and do not require a formal
mortgage deed. Rather, they can be established through various as oral or written
agreements, without the need for specific legal documentation.
 Legal mortgage requires a formal mortgage deed signed by both parties, with all terms
and conditions clearly specified.
Registration:
 Equitable mortgages are not registered with a government authority like a land
registry, making them less visible to the public.
  Legal mortgage must be officially registered with a government authority, such as a
land registry, creating a public record of the mortgage.

Visibility:
 Typically in equity mortgage, only the parties involved in the mortgage are aware of
its existence.
 Legal mortgage is easily visible to the public, potential buyers, and other interested
parties, providing transparency.
Enforcement:
 Equitable mortgage In case of default, the lender’s claim to the property may be more
challenging to prove and enforce in court.
 Legal mortgage In case of default, the lender has a well-documented and legally
enforceable claim to the property.

Common usage:
 Equitable mortgages are commonly used when a formal mortgage deed cannot be
executed immediately, providing a temporary solution.
 Legal mortgages are the standard in property transactions, providing security and
legal clarity for both mortgagor and mortgagee.
Risk:
 In equitable mortgage there may be a higher risk for lenders, as the mortgage may not
offer the same level of legal protection and clarity as a registered mortgage.
 Legal mortgages offers lenders greater legal protection and a clearer path for property
repossession in case of non-payment.
CONCLUSION
The distinction between equitable mortgages and legal mortgages is significant in the world
of property financing. Equitable mortgages offer flexibility and a temporary solution, often
relying on informal agreements, but they come with a higher level of risk and fewer legal
protections.
On the other hand, legal mortgages provide a structured and secure framework for both
borrowers and lenders. They are transparent, legally enforceable, and widely accepted in
property transactions. Choosing between the two depends on individual circumstances, but
understanding these differences is essential for making informed decisions in real estate and
financial matters.

REFERENCES:
http://www.resolutionlawng.com/procedure-for-perfecting-of-legal-mortgage-in-nigeria/
https://www.investopedia.com/terms/m/mortgage.asp
https://www.sorbaralaw.com/resources/knowledge-centre/publication/equitable-mortgages-
what-are-they-when-they-may-arise-and-their-effects
https://www.google.com/amp/s/www.idfcfirstbank.com/finfirst-blogs/finance/registered-
mortgage-vs-equitable-mortgage/amp