A borrower gives a mortgage on her commercial building to a bank to secure repayment of a loan. The mortgage instrument contains the following clause:
"If the borrower defaults, she hereby waives any and all rights to redeem the mortgaged property, and title shall immediately vest in the bank without the need for foreclosure."
After the borrower defaults, the bank seeks to rely on the clause and record its title to the building without bringing a foreclosure action. Which of the following best states the legal effect of the clause?
The clause is enforceable because parties are free to waive equitable rights by contract.
The clause is unenforceable because it constitutes an impermissible clog on the borrower's equity of redemption; the bank must foreclose before it can obtain title.
The clause is unenforceable only if the mortgage is recorded after the borrower's default.
The clause is enforceable only if the loan's interest rate does not violate the jurisdiction's usury laws.
The mortgagor's equity of redemption is an inseparable incident of every mortgage. Courts treat any provision contained in or executed contemporaneously with the mortgage that prevents or unduly restricts redemption as a "clog" on that equity. Under the common law and the Restatement (Third) of Property: Mortgages § 3.1(b), such a provision is ineffective; the borrower may redeem by paying the full debt until a valid foreclosure sale occurs. Freedom-of-contract principles do not override this equitable doctrine, and the clause's validity does not turn on recording, loan amount, or interest-rate compliance. Consequently, the clause is unenforceable, and the bank must foreclose before obtaining title. The other options misstate or ignore the anti-clogging rule.
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