Final answer:
The term 'equity of redemption' refers to the right that allows a borrower to reclaim their property by paying off the outstanding debt before foreclosure. Equity is calculated as the market value of the property minus what is still owed to the bank. Examples were provided to illustrate the concept of equity for different property values and debt situations.
Step-by-step explanation:
The right of the mortgagor or another person with interest in the property to reclaim it after default, but before foreclosure, is referred to as equity of redemption. This concept allows the borrower to regain control of the property by paying off the outstanding debt before the foreclosure process is complete. For example, let's consider the following scenarios:
- If Fred's house has a market value of $200,000 and he owes $180,000 to the bank, his equity in the property is $20,000.
- If Freda's house is worth $250,000 and she owes nothing to the bank, then her equity is the full $250,000.
- Frank, whose house is worth $160,000 and owes $60,000 to the bank, has equity of $100,000.
These examples illustrate how equity can vary depending on the market value of the property and the amount still owed to the creditor. The equity of redemption is significant because it provides the mortgagor a last opportunity to prevent the loss of property through foreclosure by fulfilling their financial obligations.