Renegotiation and Secured Credit: Explaining the Equity of Redemption

In general, all persons able to contract are permitted to determine and control their own legal relations by any agreements which are not illegal, or opposed to good morals or to public policy; but the mortgage forms a marked exception to this principle. \u27 I. INTRODUCTION Once a mortgage, always a mortgage. This cryptic comment, oft-repeated, summarizes a central tenet of mortgage law: The equity of redemption is essential, immutable, and unwaivable. In other words, every mortgage borrower has the right, at any time after default, to redeem the collateral by repaying the debt until the lender has completed a foreclosure on the collateral. Indeed, a mortgage substitute that would dispense with the equity of redemption is the holy grail of real estate finance, and has captured the efforts and attentions of lawyers and lenders for centuries. Every effort, however ingenious, has been met by the unyielding resistance of the courts: one may not clog the equity of redemption. The idea that the equity of redemption is an inherent and inseparable part of every mortgage is now so commonplace, so accepted, that it elicits relatively little comment or question. A few moments\u27 reflection reveals how odd this doctrine is, especially in the commercial setting. If the equity of redemption is basic to mortgage law, freedom of contract is equally central to the realm of commercial finance. Although various procedural restrictions are imposed by law to help ensure that contracts are fair and efficient, the refusal to enforce a freely negotiated term in a commercial contract between sophisticated parties, while not totally unheard of, is something of an oddity. The judicial resistance to waivers of protections by commercial mortgagors appears even more curious when we consider various subsidiary issues. For example, if such protections are not economically efficient, can their retention, over centuries of litigation and legal change, be squared with the oft-asserted thesis that the common law tends to adopt economically efficient rules? And if such protections are economically efficient, why must they be imposed by the law-wouldn\u27t the parties themselves choose to include these terms