2) Mortgages Flashcards
(70 cards)
1
Q
Legal Mortgages
A
- A legal mortgage is capable of being a legal interest in land.
- Myst be validly created in compliance with formalitiesn for creating a legal interest over registered land
LPA 1925 s52
2
Q
Formalities for creating a legal interest
A
Deed and registration
* Must be created by deed LPA 1925, s52
* Must comply with requirements:
- Be intented to be a deed
- Be validly executed
- Be delivered
* Must be registered at the Land Registry LRA 2002, s27(2)(f)
LP(MP)A 1989 s1
3
Q
If a legal mortgage is not registered, what will happen?
A
- The mortgage will not take effect as a legal mortgage in the land s27(1)
- Could still be an equitable interest
4
Q
Equitable mortgage
A
- Mortgage of an equitable interest
- Defective legal mortgage
5
Q
Mortgage of an equitable interest
Equitable mortgage
A
- Brrower holds an equitable interest in land.
- Any mortgage of that interest will be equitable in nature.
- Equitable mortgages can be created informally, in accordance with LPA 1925 s53(1)(c)
- Need only be in writing and signed by the grantor to be valid.
6
Q
Defective legal mortgage
Equitable mortgage
A
- Mortgage over the registered estate which is not granted by a valid deed or that is completed by registration will not take effect as a legal mortgage]
- May be regarded as an equitable morgag pr
7
Q
Discharge of mortgages
A
Once a mortgage has been re[aod in full, the mortgage entries at the LR must be cancelled.
Mortgage is only considered to be full discharged whne all reference to it has been removed from the charges register at the Land Registry.
8
Q
Equity and the date of redemption
A
Equity intervened and allowed a borrower to repay a loan at any time after the legal date for redemption had passed.
This is known as the equitable right to redeem.
Recognising that a mortgage is security for a loan and not an opportunity for the lender to gain something more
9
Q
Equity of redemption
A
Equity recignises the borrower as the true owner of the property and prtoects the borrower’s rghts as owner.
Includes equitable right to redemption
Protect the borrower from exploitation by the lender, protects borrower from clauses postponing or preventing redemption, collateral advantages and unconcscionable terms
10
Q
What is the financial value of the equity of redemption
A
The equity that people have in their homes, being market value less the outstanding debt
11
Q
Summary of equity of redemption
A
a) Equitable right to redeem supplements legal right to redeem
b) No postponement or prevention of redemption
c) No collateral advantages
d) No unconscionable terms
12
Q
When does the equitable right to redeem arises on the following day?
A
- The following day after the first day on which the loa can be repaid
13
Q
Postponement of the right to redeem
A
- Courts will not allow a clause which postpone the legal date for redemption very closely and will not allow a clause which prevents redemption altogether
- May allow a lender to postpone the date, but bear in mind the equitable rule that there myst be no clog or fetter on the equity of redemption
- Question of fact and degree.
Toomes v Conset
14
Q
Toomes v Conset
Clauses for postponement
A
- Courts will not allow a clayse which prevents redemption altogether
15
Q
Fairclough v Swan Brewery Co Ltd
A
- Fairclough mortgaged the lease of his pub to Swan Brewery.
- Lease had 17.5 years left to run.
- A clause in the mortgage deed postponement the legal date for redemption until six weeks befor ethh elease expired.
- Borrower wished to redeem early
- Clause postponing redemption was struckout and the borrower was permitted early redemption
- Clause was a fetter on the equity of redemption because it prevented the borrower from getting back anything of value
- A lease with only six weeks to run was virtually worthless making the mortgage in reality irredeemable
16
Q
Knightsbridge Estates Trust Ltd v Bryne
A
- Borrower mortgaged the freehold of a hotel
- Legal date for redemption was postponed for 40 years from the date of the loan. Borrower wanted to redeem early.
- Court upheld the postponement of redemption and would not allow early repayment
- The borrower would (eventually) get bacl exactly what had been mortgaged and the borrower had been given a **favourable low rate of interest ** as part of the mortgage deal.
17
Q
Why was the postponement upheld in Fairclough?
A
- The estate being mortgaged was a leasehold = a depreciating asset
- The borrower could not get back exactly what had been mortgaged on redemption
- A lease with 17.5 years left to run on the term is different to one with 6 weeks left to run.
18
Q
Why was the postponement upheld in Knightsbridge Estates Trust?
A
- Estate being mortgaged was freehold commercial premises
- A freehold estate is enduring nd rarely loses value. Borrower would get back exactly what mortgaged on redemption
- The deal also favoured the borrower - it got something in return for the postponed redemptioin date.
- May have been different if a domestic property
19
Q
Domestic Borrowers
A
- Often locked in for a period of time, rarely exceeds a few years
- It is aso possible to redeem during the “lockin” but would have to pay for the privilege
- Unlikely to be void, as borrowers are usually offered a clear advantage of low interest for a lock in.
20
Q
Options to purchase
A
- Options to purchase may be delclared as void as preventing the equitable right to redeem.
- If the lender has the opportunity to buy the property, the borrower loses the right to take the property back free of the loan = fundamental to the nature of the mortgage as security.
- This is a “clog” on the equity of redemption and equity will strike down such terms, especially domestic cases.
21
Q
Samuel v Jarrah Timber and Wood Paving Corp
Option to Purchase
A
An option granted at the same time as the mortgage will normally be declared invalid
22
Q
Reeve v Lisle
Option to Purchase
A
If an option is granted in a subsequent transaction it may be upheld if independent of the mortgage
23
Q
Warnborough v Garmite
Option to Purchase
A
- If the mortgage and option are granted at the same day but are in fact completely separate, the equity of redemption is irrelevant
- The option will be upheld
- Need to look at the “substance of a transaction” to asecertain whether a mortgage or not.
24
Q
Is the label of a transaction relevant?
A
- No
- Must look at the “substance of a transactioN”
*
25
What are lenders entitled to?
* Only the repayment of capital advanced plus interest
* Cannot extract additional value from the borrower.
26
When will a collateral advantage be struck out?
* If it is unconcsionable either:
* in the nature of a penalty
* Or if it is repugnant to the equitable right to redeem.
27
* The **solus tie**
* Lenders often breweries or oil companies.
* Lender makes it a condition of the morgage that the borrower buys all its supplies from the lender.
* Interest rate may be lower than in a deal which does not involve a solus tie.
* **Generally, solus ties are upheld in commercial transactions if they end within the mortgage term**
28
Noakes & Co Ltd v Rice
## Footnote
Solus ties
* Mortgaged leasehold pub to brewery.
* Solus tie included requiring the borrower to sell beer brewed by the lender
* The tie was to last for the lease term even if the loan had been paid.
* **This was void, as exceeded the mortgage term**
* Borrower would not get back what he mortgaged, because at the end of the term what **had been a ggreehouse would still be subject to the solus tie.**
29
Biggs v Hoddinott
## Footnote
Solus ties
* Borrower mortgaged his freehold pub to a brewery
* Mortgage included a covenant by the borrower to buy beer exclusively from the lender for the duration of the mortgage which could not be redeemed for five years.
* After two years the borrower argued the solus tie was a clog.
* Lord Justice Chitty refused to declare the tie void, **it is posisble for the lender to gain a collateral advantage to himslef**, so long as it is **not inconscionable or oppressive**
30
What can courts do with unconscionable terms
* Strike them out
* Must be more than simply "unfair" or "unreasonable"
31
High Interest Rates
Unconscionable Terms Key Cases
* Cityland and Property Holdings Ltd v Marden
* Multiservice bookbinding Ltd v Marden v Marden
32
Mortgage regulation
* Statutory supervision is now carried out by the **Financial Conduct Authority** using rules in **FCA Handbook**
33
Cityland and Property Holdings Ltd v Dabrah
| High Interest Rates
Unconscionable Terms Key Cases
* Borrower was a tenant of the lender for 11 years
* Lender had refused to renew lease and threatened the tenant with eviction.
* Mortgage deed did not clearly state interest rate, but was approx 19%. The arrangement included payment of a premium of 57\5 of the original sum if borrrower defaulted.
* **Overall interest rate was 38%**
* Interest rate was unconscionable and was reduce to 7%
* **Clear imbalance of bargaining power between the parties**. Borrower was vulnerable with homelessness, this was exploited.
**Premium was unconscionable as wiped out chance of surplus sale proceeds.**
34
Can a higher than interest rate be charged?
* Yes,
* But imposition of premium was uncoscionable as wiped out chance of sale proceeds for borrower
## Footnote
Cityland
35
Multiservice Bookbinding Ltd v Marden
* A borrower company mortgaged its premises to a private individual
* One term of the loan was that the level of repayments be linked to the vlaue of the Swiss Franc.
* The pound fell, and the borrower claimed the term was void.
* **The term would be uncoscionable if it were imposed in a morally reprehensible manner** which affects the lender's conscience.
* There was **equality of bargaining power**, had just entered a bad deal
* = **not uncoscionable**
36
Falo Finance v Gough (unreported)
## Footnote
Interest rates
* If a **penalty interest rate** imposed in the event of borrower default far exceeds the lender's losses in the circumstances then **it will be void.**
37
Davies v Directloans Ltd
## Footnote
Interest rates
* A lender will not have acted improperly and a high interest can be justified, if the borrowers have **a poor credit history and are a credit risk.**
* **Lender may be justified in charging a higher rate in certain circumstances.**
38
Paragon Finance v Nash
* This lender is entitled to take its own commercial needs into account and may be justified in imposing a higher interest rate where it is in financial difficulties itself.
* Providing it is not exercising any discretion for improper purpose.
39
Test to see if a term is unconscionable
* The term has to be **morally reprehensible**
* Need to consider the *circumstances* and *factors* the court had regard to in both **Multiservice** and **Cityland** and statuory cases
40
What happens if a term is declared void?
* It will not be enforceable on the borrower
* Remaining agreement will remain in force
41
What must unconscionable terms be?
* More than hard bargains
* They must be imposed in a morally reprehensible way
* One which takes advantage of the borrower's vulnerable position
42
What is the test in ***Multiservice***?
* Has the term been imposed in a "morally reprehensible" manner?
43
Undue influence
* If consent to a transaction was produced in a way such that the consent ought not fairly to be treated.
* Transaction will not be allowed to stand
* Cannot be more precise or definitive
## Footnote
RBS v Etridge (No2)
44
What are the two types of ***undue influence***?
1. **Overt** acts of improper pressure or **coercion** such as unlawful threats. *Overlap with duress*
2. **Influence or ascendancy** over the other that is taken advantage of. Underlying relationship ma be sufficient.
45
Taking advantage of influence or ascendancy in a relationship
| Example
## Footnote
Undue Influence
* More common
* A business owner wants their spouse ot enter into an agreement
* Mortgages matrimonial home for business.
* Business fails
* Relationship of ***trust and confidence*** is abused
* Can amount to undue influence
46
Relationships of influcence or ascendcy
## Footnote
hallmarks
* Usually trust and confidence which one party has in the other
* A relationship where one party is very vulnerable or dependent might also allow the other to have significant influece.
47
Relationships where it is irrebuttably presumed that one party has ascendancy over the others
* Parent and child
* Guardian and ward
* Trustee and beneficiary
* Solicitor and client
* Doctor and patient
48
Do *parents and adult children* give ris to a presumption of influence and ascendancy?
No, influence would need to be postively shown
49
Does the relationship of *husband and wife* give rise to the presumption of a relationship of influence / ascendancy?
No, influence will need to be positively shown
50
Would every transaction between parties with a relationship of ascendancy / influence give rise to undue influence?
* No
* Only when the relationshipp has been taken advantage of
* ie deception
* Acting solely in their interests
51
Who has the burden of proving D has been the victim of undue influence?
* The victim.
52
Proof of taking advantage of influence or ascendancy in a relationship
* Relatioship of trust and confidence
* Transaction which requires explanation
**= undue influence**
Unless the wrongdoer can produce evidence to convince the court there was no such undue influence.
* Unless D produces evidence to the contrary
53
When will a transaction require explanation
If it does not fit with what would usually be expected in the relationship concerned
* Suspicious transaction
* Or a suspiciously high value.
54
Is spouses agreeing to security on home for a business a transaction requiring explanation?
* No
* The party alleging undue influence would need to prove that unfair advantage had been taken of the relationship
55
Limits on equitable relief
* Where undue influence is proven
* A contract (or gift by deed) may be set aside
* Relief is equitable and therefore discretionary
* No delay: **Delay defeats equity**
* Delay: **Come to equity with clean hands**
56
Risk to a lender
* Risk to lender when there is a prior relationship of trust or confidence
* It will depend on the facts however
57
If the spouse can successfully argue that they were unduly influenced into entering the mortgage deed?
The mortgage will be unenforceable against them
## Footnote
Barclays Bank Plc v O'Brien
58
How does the bank ensure it has priority?
Banks are to be put on inquiry of the risk of undue influence whenever one-party in a **non-commercial stting is standing as surety for the other party**.
* Must follow the guidelines of *RBS v Etridge*, if it does this, they are protected from claims
## Footnote
RBS v Etridge (No2)
59
Is the lender put on inquiry/notice of undue influence if the purpose of the loan is for the ***joint benefit*** of the co-owners
* Mortgage application for a holdiay cottage
* Nothing to put the lender on notice that the transaction was anything other than a normal advance for the couple's joint benefit
| CIBC Mortgages pc v Pitt
## Footnote
****
60
Where a bank is put on inquiry/notice of undue influence it must....
## Footnote
Etridge guidelines
1. **Write to the spouse** granting the mortgage explaining they need confrimation from an **independent solicitor** tha tthey have explained the transaction to the spouse.
2. Ask the party to nominate an independent solicitor, provide all information to that independent solicitor
3. Must not proceed to lend until **confirmation is received from the independent solicitor that the transaction has been fully explained**
61
Where a bank is put on inquiry/notice of undue influence the **independent solicitor** must
## Footnote
Etridge Guidelines
* Meet the party entering the mortgage not for their oewn benefit *face-to-face, and on their own*
* Explain why they have to come to see the spouse - ie to stop them from being able to claim undue influence later
* Explain the documents and transactions in a meaningful way using non-technical language
* Point out the risks
* Emphasise that the spouse has a choice
* Detailed attendance note and confirm everything in writing
* Send a certificate to bank
62
The legal issue of priority of morgages determines
* Which lender will be paid first
* Which lender will get nothing
* Rules on priorities of mortgages.
63
Legal Mortgages
* All mortgages over registered land must be registered substantively to attain status of a legal mortgage ***(LRA 2002, s27(2)(f))***
* Once registered, they take effect as a **registered charge**.
* A mortgage over registered land which is not completed by substantive registration will not take effect as a legal mortgage **s27(1)**
64
****Order of priority for legal mortgages
* Piority depends on the way they are entered on the register
* Regardless of the order of the mortgage deeds being signed.
* Application for registration will specify order of priority
* **Priorty between registered charges depends upon the order they are registered.**
## Footnote
**LA 2002, s48**
65
Equitable mortgages order of priority
Rank in order of creation, as can be created and exist without regisration
## Footnote
LRA 2002, s 28
66
LRA 2002, s32
Although not required in order to validly create the interest, an equitable mortgage over registered land can be protected by the entering of a **notice on the charges register**
67
Notice on the charges register for an equitable register
If protected by an entry of a notice, an equitable mortgage over registered land **will take priority** over a subsequent legal mortgage
## Footnote
LRA 2002, s29(1)
68
Will an equitable mortgage bot protected by a notice, take priority to a subsequent registrable disposition
* Either a registered estate or a registered charge
* A transfer of the legal estate for value or grant of a legal mortgage
## Footnote
LRA 2002 s29(1)
69
Would protection of equitable mortgage by entry of notice impact the order of priority if another mortgage pre-existed?
* No in this case it will not as the **order of creation determines prioirty** between competing **equitable mortgages**
70
