Chapter 8: Mortgages

Question 1

who is the mortgagor/ mortgagee?

Answer 1

Mortgagor - the person who borrows money, in return for that money they grant a mortgage to the lender (because they are the legal owner they can grant).

Mortgagee - the lender who loans money to the home owner, in return obtain a proprietary interest in that person’s land or property.

Question 2

when is a mortgage legal?

Answer 2

carried out all formalities and registers in title deeds.

Question 3

what happens if someone wants to sell property before the mortgage is paid in full?

Answer 3

they can use the proceeds from the sale to pay the mortgagee

Question 4

when is a mortgage equitable?

Answer 4

no formal deed (no legal interest) e.g life interest under a trust

defective legal mortgage

Question 5

what is the position of the mortgagee post 1925?

Answer 5

legal ownership remains with mortgagor - mortgagee is named on the title deeds with legal charge /interest.

Question 6

what is the legal date of redemption?

Answer 6

6 months after the mortgage - stops mortgage from exercising power of sale in this time.

Question 7

what is equity of redemption?

Answer 7

the rights a mortgagor holds

Question 8

what is the equitable right to redeem

Answer 8

the right of the mortgagor to repay the mortgage in full after the legal redemption date (6. months).

Question 9

what is equity in property?

Answer 9

difference between the amount of the mortgage and the property

Question 10

what is negative equity?

Answer 10

the amount required to repay the mortgage in full is higher than the value of property/ sale price

Question 11

what is redemption?

Answer 11

paying off any outstanding debt to the mortgagee. Paid at the end or an earlier date if the property is sold (redeemed from proceeds of sale)

Question 12

what are the 4 equity of redemption (rights for mortgagor)?

Answer 12

Equitable right to redeem the loan (doctrine of clogs and fetters)

Protection under consumer protection legislation

Protection from undue influence

Right to enjoy the land without interference

Question 13

what is the doctrine of clogs and feathers?

Answer 13

The equitable right to redeem.

Question 14

what would remove an equitable right to redeem?

Answer 14

unfair conditions

terms that change the nature of the relationship

if collateral damage terms are shown to be morally wrong

if the right was an illusion only - not beneficial to mortgagor

Question 15

what protection is available under consumer rights legislation to a mortgagor?

Answer 15

consumer rights act 2015 (unfair terms)

financial services and markets act 2000 (after 31 October 2004) contracts fair and transparent

consumer credit act 2006 - court intervention if the relationship is unfair

Question 16

what happens if undue influence is proven?

Answer 16

entire mortgage set aside.

Question 17

what must a mortgagee do to ensure undue influence does not happen?

Answer 17

mortgagee (bank) must take reasonable steps to ensure the mortgagor is fully aware of the nature and consequences of the mortgage.

Question 18

what are the types of undue influence?

Answer 18

Presumed
Actual

Question 19

when would presumed undue influence arise?

Answer 19

One party is vulnerable

Relationship of trust

Claim undue influence for a breach of trust (e.g act for their own personal benefit)

Transaction needs an explanation (e.g illiterate/ blind)

Question 20

when would actual undue influence arise?

Answer 20

must use specific evidence to positively prove

Question 21

what is the Etridge protocol?

Answer 21

steps a mortgagee can take to stop the mortgage being set aside when undue influence arises

Question 22

what are the steps in the etridge protocol?

Answer 22

Proof of undue influence?

Was the mortgagee aware of the relationship of the mortgagor and so was put on inquiry? (Mortgagee is aware one party is acting as a guarantee for another’s debt & loan is for their benefit)

Take reasonable steps to minimise risk of undue influence? Put on inquiry?

Question 23

what steps could be taken when a mortgage is put in inquiry for undue influence?

Answer 23

Mortgagee advise independent legal advice?

Same solicitor - did the mortgagee ask if the party claiming want to instruct another solicitor?

Mortgagee provided solicitor will all relevant information and report any suspicion of undue influence

Independent legal advice must be given by the solicitor to the party claiming undue influence

Solicitor must provide mortgagee with evidence of this advice

Question 24

what rights/ remedies are available to the mortgagee?

Answer 24

Right to payment
Right to possession
Power of sale
Appointing a receiver
Foreclosure

Question 25

what rights / remedies of the mortgagee are usually used together?

Answer 25

right to payment right to possession order of sale

Question 26

what is the time period to recover debt?

Answer 26

12 year period to recover debt = not recovered = statute barred 6 year period to recover any interest owed. Time starts running after the period of missed payments.

Question 27

what limitations are there on the right to possession?

Answer 27

s6(1) CLA 1977 - need a court order S36 Administration of Justice Act 1970 - if mortgagor can demonstrate they can repay the debt, this will delay possession proceedings Inherent jurisdiction to postpone - court can grant temporary relief in equity (only a few weeks) cannot apply to negative equity. Family Law Act 1996 - protection of spousal rights - postpone if there is a connected person who should be made party to proceedings e.g contributed to mortgage or spouse has registered occupational rights (this person could show they can pay the debts).

Question 28

who is a connected person?

Answer 28

spouse, former spouse, civil partner, former civil partner, cohabitant or former cohabitant (these people can ask to postpones proceedings).

Question 29

what must be present to use power of sale?

Answer 29

- power of sale must arise - conditions met: Mortgage made by deed Legal date of redemption is passed No clause excluding

Question 30

in what scenarios can a mortgagee use power of sale?

Answer 30

Notice of default served & 3 months lapsed without payment OR Interest is in arrears and unpaid for 2 months after becoming due OR There has been a breach of any other term

Question 31

what obligations are placed on a mortgagee to stop an abuse of power?

Answer 31

Duty to act in good faith - conduct an honest sale to an unconnected person Obtaining true market value Discretion when to sell property Discretion on method to sell - must provide purchaser with full information

Question 32

what happens when a mortgagee fails to carry out their obligations in a power of sale?

Answer 32

mortgagor can seek to set aside order of sale or mortgagee pay for any shortfall (what should have been obtained if sold below market value)

Question 33

what other obligations are placed on a mortgageee for the power of sale?

Answer 33

Repay any prior mortgages Repay expenses for selling the property Repay any sums owed to mortgagee who sold property e.g capital/ interest Repay remaining balance to any subsequent mortgagees (none then back to mortgagor)

Question 34

when would a mortgagee appoint a receiver?

Answer 34

Commercial premises. Appoint to manage premises/ receive rent/ pay expenses/ repay mortgagee.

Question 35

what is the legal effect of foreclosure?

Answer 35

Effect = completely stop mortgagors equity of redemption. Property will vest to mortgagee - become registered proprietors.

Question 36

what is the effect of pre action protocol 2008? when does it apply?

Answer 36

stop litigation open dialogue/ agree payment plan Applies to all mortgages who hold a first legal charge over residential properties (priority charge in title deeds)

Question 37

what are the characteristics of legal mortgages?

Answer 37

registered in the charges registers of the title deeds = land charge priority is in order of date registered not date created.

Question 38

what are the characteristics of equitable mortgages?

Answer 38

Granted by a mortgagor with equitable ownership or where deed nor correct/ not registered correctly (defected legal mortgage). registered as a notice in the charges register

Question 39

in registered land when will a legal mortgage take priority?

Answer 39

registered as a charge = it will take priority over all interests by date of registration not registered = not have priority over other interests

Question 40

in registered land when will an equitable mortgage take priority?

Answer 40

registered as a notice= it will take priority over all later interests not registered = first equitable interest in time will take priority

Question 41

who controls the title deeds in unregistered land?

Answer 41

First mortgagee Prevents mortgagor from any further dealings/ mortgages

Question 42

what happens if a equitable mortgage is not entered as notice in unregistered land?

Answer 42

Not registered as notice = void against future purchaser for valuable consideration.

Question 43

when will a legal mortgage take priority in unregistered land?

Answer 43

deed with the first mortgagee = yes subsequent mortgages protected if a class (i) land charge is registered deed no with the first mortgagee = priority will depend on when the class (i) land charges have ben registered (NOT CREATED)

Question 44

When will an equitable mortgage take priority in unregistered land?

Answer 44

deeds are with the first mortgagee= subsequent mortgages will be protected if a class (iii) charge is registered deeds are not with the first mortgagee = priority of the mortgagees will depends on when the land charges have been registered

Question 45

what is tacking?

Answer 45

lend further money under an original mortgage agreement. tacked onto existing agreement.

Question 46

what problems can arise with tacking with subsequent mortgagees?

Answer 46

Subsequent mortgagee with priority (registered before tacking) may not recover amount if they received notice Subsequent mortgagees may not recover amount if they do not check whether the priority mortgage granted any further advances