Mortgages Flashcards
What is a mortgage?
A bundle of proprietary rights granted to a lender by an owner of a property in security for a loan.
What is a legal mortgage?
A proprietary interest in land. Must be created as a deed (LPMPA 1989 s1) + registered to be legally enforceable.
What is an equitable mortgage?
Can be created by mortgagor who only holds an equitable interest in the land rather than being the legal owner in writing + signed by grantor (s.53 LPA 1925).
Can be created by default where legal mortgage is defective provided complies with reqs for land contract (s.2 LPMPA 1989), in writing and signed by both parties, containing all agreed terms.
Discharge of Mortgage
Once mortgage repaid in full, mortgage entries at LandRegister must be cancelled. Only fully discharged once removed from Register (DS1 for whole land, form DS3 if only part of land).
What is the equity of the redemption?
Full bundle of the borrower’s rights in the property subject to the obligations imposed by the mortgage. Equity recognises borrower as true owner of property and protects these rights.
Can sell the property despite mortgage and use proceeds to discharge mortgage.
(1) Equitable right to redeem the loan;
(2) protection from clauses postponing or preventing redemption;
(3) protection from clauses giving collateral advantages to lender;
(4) protection from unconscionable terms in the mortgage deed.
Equitable Right to Redeem
Borrower has a right to repay the loan on reasonable notice to lender and have mortgage discharged from property even where not within strict time limits specified by agreement.
Borrower may lose right if right foreclosed by app to court by lender. Even then, borrower can reopen foreclosure by willing to repay financial losses to lender.
Right to Protection from Postponement or Prevention of Redemption
Clauses preventing redemption prohibited.
Right to redeem must not be rendered valueless or a clog/fetter on right to redeem.
e.g pushing back redemption to 6 weeks before end of lease.
BUT allowed where lender offers clear advantage in exchange for postponement, e.g low interest rate UNLESS it is a residential property.
Options to purchase granted at same time as mortgage usually invalid. If option to purchase is a subsequent, independent deal, may be allowed (even if granted on same day).
Right to Protection from Collateral Advantage
Lender’s right under mortgage is to repayment of capital + interest. If lender tries to get other advantages, usually not permitted.
Struck out if collateral advantage is unconscionable, a penalty or repugnant to equitable right to redeem.
e.g solus ties - usually upheld if it ends within the mortgage term.
Right to Freedom from Unconscionable Terms
Court may strike out oppressive and unconscionable terms, more than unfair or unreasonable.
e.g interest rate = 38% too high BUT can charge high interest rate if borrower has poor credit history and risky. Lender can consider its own commercial position as long as not done for improper purpose.
e.g penalty imposed for default far exceeding lender’s loss
e.g NOT simply bad bargain.
What is Undue Influence?
Consent to transaction not produced by a person’s own free will. Results in voidable contract with equitable, discretionary relief.
(1) Instances of improper pressure or coercion.
(2) Relationships of ascendency:
- irrebuttable presumption of influence for parent and minor child; guardian and ward; trustee and beneficiary; solicitor and client; doctor and patient.
- for spouses or parent and adult child, must positively show undue influence.
For relationships of ascendency, must show transaction requiring explanation (e.g suspiciously high value).
Role of the Lender
Lender put on notice when spouse offers to stand surety for spouse’s debt + transaction not for their financial advantage + there is substantial risk of legal or equitable wrong.
To avoid mortgage being set aside for undue influence, lender must:
- write to party explaining that independent solicitor must explain transaction + require proof.
- Lender must provide solicitor with all info on documents, seriousness of risk and fact party has choice to enter transaction. Lender must not lend until confirmation received.
Role of Solicitor
Must check if conflict of interest if they advise both spouses + advise lender if one party may have been misled. Must meet face-to-face with party on their own and confirm everything in writing then send certificate to lender.
Need for priority of Mortgages over Registered Land
Where mortgagees lend on the same property and the borrower defaults and the property is sold, the proceeds of sale are less than the outstanding debt, who gets paid first is determined by the rules of priority.
Rules of Priority
Priority between legal mortgage depends on order of registration (LRA 2002, s 48).
Priority between equitable mortgages = rank in order of creation (LRA 2002, s 28). Equitable mortgage can rank above subsequent legal mortgages if notice entered in register under s.32 but DOES NOT affect priority between equitable mortgages. Equitable mortgage not protected by notice will lose priority to subsequent legal mortgage or registrable disposition of estate for value.
Priority and Postponement
Priority rules can be modified to allow mortgage to take priority over existing interest (deed of priority or intercreditor deed) requiring express waiver or postponement to be included in agreement so any rights of person living in mortgaged property are postponed to rights of the lender.
