L9: Mortgages

Question 1

What is a mortgage?

Answer 1

A contract between lender and borrower
A capital sum of money is lent on the security of the property owned by the mortgagor (borrower)
Security for a loan
Mortgagee has legal and equitable interest in property until the loan is repaid
Pr last as long as the outstanding debt

Question 2

Types of mortgages

Answer 2

Repayment mortgage
Endowment mortgage

Question 3

What is a repayment mortgage?

Answer 3

Used for purchase of residential properties & commercial activities
Mortgagor borrows capital sum and agrees to pay back sum + interest over a fixed period
Paid in instalments
When the mortgage is redeemed, the registered mortgage (registered charge) is discharged and mortgagor owns property absolutely

Question 4

What is an endowment mortgage?

Answer 4

For purchase of residential property
Mortgagor borrows capital sum for fixed period
Repays interest in regular monthly instalments
Mortgagor enters endowment policy
He or she pays regular sum towards purchase of an endowment which matures at the same time the mortgage period ends
Endowment generates enough to pay mortgage
If it does not realise enough funds -> remortgage and continue to pay instalments

Question 5

What is a charge?

Answer 5

A charge is the manner in which any mortgage is created

Question 6

How were mortgages created pre - 1926?

Answer 6

Borrower divested themselves of entirely of their interest for the loan
Mortgage contract allowed mortgagee to keep borrows land if she failed to repay loan on the legal date of redemption
Equity of redemption = borrower entitled to a reconveyance of property if they pay full sums due even if the legal date has passed

Question 7

How is a legal mortgage created prior to 1 Jan 1926?

Answer 7

Mortgagee is given lesser proprietary right in the land appropriate to the type of mortgage created
Legal mortgages of registered title can only be created by the use of a charge
s85(1) LPA - two methods of mortgage creation of an unregistered title (before 13 oct 2003)

Question 8

What is the long lease method of creating a lease?

Answer 8

Mortgagor grants mortgagee a long lease over land- termination of lease upon repayment of all sums due
Mortgagor will demise a term of years absolute to the mortgagee subject to a provision of cesser on redemption
Borrower retains legal fee simple throughout term of mortgage
Lender has a proprietary interest
Mortgagee has immediate right to possession

Question 9

How can a legal lease be created by charge prior to 2003

Answer 9

The charge by deed
Mortgagor creates a mortgage by executing a charge by deed s85(1) and 87 LPA
Most common form of mortgaging land - only method of mortgaging registered titles

Question 10

Legal mortgages of leasehold estates : unregistered and registered before 13 oct 2003

Answer 10

Long sublease
Grant of sub lease to mortgagee
Sublease is shorter than the lease of the leaseholder
Charge
Legal charge by deed s87 lpa

Question 11

How are legal mortgages created under the LRA 2002 ?

Answer 11

s23(1)
Only way of creating a legal mortgage of freehold or leasehold is by a legal charge
S87 LPA- charge to be made by deed expressed to be by way of legal mortgage

Question 12

Does a charge by deed confer a proprietary interest upon the mortgagee?

Answer 12

S87 LPA: chargee obtains the same protection, powers and remedies as if the mortgage had been created by a long lease

Question 13

Steps for creating a charge by deed

Answer 13

Charge made by deed expressed to be made by way of legal mortgage
Substantively registered as a registered charge

Question 14

Effect of a charge by deed

Answer 14

Mortgagee is shown as the proprietor of the charge
Registration ensures the mortgage qualifies as a registered disposition (priority for mortgagee over prior rights)
Guarantees mortgage’s validity even if there was a problem leading to the execution of the mortgage- Swift 1st v Chief Land registrar

Question 15

What are the formalities for an equitable interest?

Answer 15

Must comply with s53(1)(c) LPA
Mortgage of equitable interest must be in signed writing
S2 LPMPA
Walsh v Londsdale - specifically enforceable
Failure = void mortgage, amounts to a personal contract of debt with no security for the lender

Question 16

How can a mortgage arise by estoppel?

Answer 16

Taylor fashions v Liverpool Victoria Trustees
If one person promises an interest in land to another, that is relied on to their detriment in circumstances of unconscionability- equity can take account of the promise and protect the person who relied on it

Question 17

What is an equitable charge?

Answer 17

An informal way of securing a loan over property
Not often used
Does not involve a disposition of land- no written formalities are required

Question 18

Is an equitable mortgage on unregistered land binding?

Answer 18

Can be registered as a class c (iii) land charge LCA 1972
If not registered- no protection for mortgagee

Question 19

Is an equitable mortgage binding on registered land?

Answer 19

Can be protected by means of entry of notice against mortgaged equitable title
Failure = loss of priority unless equitable mortgagee can claim an overriding interest sch 3 para 2 as being in actual occupation of land

Question 20

What are the rights of the mortgagor?

Answer 20

Contractual right to redeem the mortgage on the date specified in the mortgage contract (usually 6 months from the date of execution subject to clogs and fetters)
Right to redeem can be bypassed if they pay the principle debt, interests and costs (equitable right to redeem thornborough v baker) - can trigger mortgagee remedies

Question 21

What is the general rule against iredeemability?

Answer 21

General rule : mortgage cannot be made irredeemable - any provision that states a borrower can be said to forfeit their property on the export of legal right to redeem is void

Question 22

what is the rule for where a mortgagee attempts to purchase the mortgage property?

Answer 22

Provision in the contract stating the mortgagee has an option to purchase the property is void samuel v jarrah timber
Such a term offends the equitable right to redeem jones v morgan

Question 23

When can a mortgagee purchase a mortgage property?

Answer 23

An option to purchase the property given to the mortgagee in a separate and independent transaction can be valid, provided it does not in substance form part of the mortgage itself (Reeve v Lisle)
Jones v Morgan
Clause that lender was entitled to purchase 50% of borrowers land was void, even though it was executed 3 years later than the mortgage

Question 24

What is unfettered redemption ?

Answer 24

Courts can strike down collateral advantages made in favour of a lender (in addition to repayment of loan, borrower promises to buy all of his supplies from the lender) - eg brewery requiring pub landlord to buy only the breweries beer
Collateral advantages= clog or fetter on the equity of redemption Bradley v Carrit

Question 25

What is the general rule relating to unconscionable terms?

Answer 25

Court can strike down a term of a mortgage which results from an unconscionable bargain Irrespective of whether it also amounts to a clog or fetter

Question 26

What is considered an unconscionable term?

Answer 26

Where it is in substance objectionable and has been imposed by one party on another in a morally reprehensible manner E,g, interest rate at such a high level it renders the equity of redemption valueless cityland properties v Dabrah

Question 27

Nash v Paragon Finance

Answer 27

implied contractual obligation of a mortgagee not to set dishonest mortgage rates, for an improper purpose, capriciously or arbitrarily that no reasonable mortgage lender would adopt (wendesbury unreasonableness)

Question 28

What is undue influence?

Answer 28

A mortgage, or a term within in, may be struck down on the grounds of undue influence E.g. husband induces wife to sign a mortgage over joint matrimonial home If plea is successful, mortgage itself may be unenforceable, person who is released may be required to pay part of the lent sum if they derived some material benefit from it

Question 29

What are the two types of undue influence?

Answer 29

Actual undue influence Presumed undue influence

Question 30

When does actual undue influence arise?

Answer 30

Claimant (mortgagor) affirmatively proves UI was exerted- includes: threats of actual violence, emotional harm, persistent pressure over a period of time Steeples v Lea Undue influence arises from absence of consent Stevens v Leeder Claimant knew why they were doing and what they were doing Burbank securities v wong Victim understood she was borrowing money but had not conception of the importance of a mortgage due to the actual undue influence

Question 31

When does presumed undue influence arise?

Answer 31

Where the relationship between the person alleged to have exercised undue influence and the victim is one of trust and confidence, making it likely that unacceptable influence has been exerted Barclays v O Brien

Question 32

How can a presumption of undue influence be rebutted? As in royal bank of scotland v etridge

Answer 32

There is a relationship of trust and confidence & a transaction that needs explanation Alleged wrongdoer must explain the transaction Popowiski v popowski– relationship did not lead to a transaction manifestly disadvantageous- rebutted presumption

Question 33

In o brien, when can a mortgage lender not be able to enforce a mortgage?

Answer 33

Inducer acts as agent of the lender Lender has actual or constructive notice of inducers unfair conduct, and has not take steps to ensure C has been independently advised Lender deemed to have notice where the transaction is not to the advantage of the borrower(is of the kind imposing substantial risk to them)

Question 34

How can a lender prove they issued independent advice?

Answer 34

Royal bank of scotland v etridge Lender insists on a private meeting between potential victim and lender, at which they are told of their potential liability and advised to take independent legal advice Lender should check directly with potentially vulnerable party for the name of the solicitor acting on behalf of them, advising it will seek written confirmation of the proposed transaction had been given Victim may use a different solicitor from that which their co owner uses Lender provides advising solicitor with all necessary financial information needed for the solicitor to give advice Lender informs solicitor of any concerns Lender obtains written confirmation of advice and steps complied with Lender provided with written certificate from solicitor = protection from UI

Question 35

What are the powers of the mortgagor?

Answer 35

-Right to redeem mortgage s91 LPA -Power to claim possession where this is not claimed by mortgagee s98 LPA -Ability to apply for an order for sale of property s91 LPA

Question 36

What is an action on the contract for recovery of debt?

Answer 36

Mortgagor promises to pay sums due plus accrued interest Mortgagee has a personal action once the date of redemption has passed Failure to repay -> debt satisfied by way of execution against property or making mortgagor bankrupt alliance & leicester v Slayford Mortgagee is not required to mitigate its loss as it is not an action in debt for a specific sum

Question 37

What is the power of sale?

Answer 37

Remedy designed to recover the whole sum owed- terminates mortgage Most contain an express power, otherwise, it is implied in every mortgage s101(1)(i) LPA Mortgagee can sell mortgage property and use the funds to satisfy the mortgage debt

Question 38

What are the conditions for the power of sale?

Answer 38

Power of sale must have arisen (once legal date for redemption passes) Power of sale is exercisable

Question 39

When is a power of sale exercisable?

Answer 39

Where it meets the requirements of s103 LPA Notice requiring whole of mortgage money Mortgagor is in 3 months arrears since notice was served Interest under mortgages is under arrears and unpaid for 2 months after being due Mortgagor breached provision of the mortgage deed

Question 40

What are the consequences of a sale?

Answer 40

Proceeds of sale are applied to meet mortgage debt and associated liabilities 105 LPA in the following order In payment of costs and charges incurred by the sale Satisfaction of the principle (capital) debt, interests and costs with the aim of discharging the mortgage Any surplus does not go to mortgagee (goes to mortgagor- halifax building society v thomas)

Question 41

What are the conditions to a power of sale?

Answer 41

If mortgagee sells the property before the power of sale has arisen, the purchaser obtains only the mortgagees interest- mortgagor remains unaffected If the mortgagee sells after power of sale arises but prior to exercisable power - purchaser may be able to take the land free of mortgage cuckmere brick v mutual finance Mortgagor can rely on equity to protect their position Selling mortgagee is under a duty of care to obtain the best price reasonably obtainable )standard chartered bank v walker) Sale by auction even where prices are low, satisfies this duty Cuckmere Brick v Mutual finance Where auction is not pursued, court considers whether selling price was within an acceptable price bracket for the property No obligation on mortgagee to pursue planning applications, grant leases, or sell fixtures to raise more money Silven Properties v Royal bank of scotland

Question 42

Can a mortgagor sell the property instead of a mortgagee?

Answer 42

Mortgagor can apply under s91 LPA for an order requiring a sale

Question 43

Sale before possession

Answer 43

Mortgagee will seek possession prior to the sale Minimises risk of mortgagor sabotaging the sale Horsham properties v Clarke and Beech Mortgagor became a trespasser-

Question 44

What is the right to possession?

Answer 44

Mortgagee is regarded as having an estate in the land- as an immediate right to possession the moment the ink is dry on the mortgage May take possession even if they are not defaulting Court order is not required Ropaigelach v Barclays Bank Mortgagee must account for any profits generated by possession White v City London Brewery

Question 45

What can a mortgagor do if the mortgagee tries to repossess?

Answer 45

Can apply for a s36 AJA Application for possession of a dwelling house may be suspended adjourned or postponed if it appears the mortgagor would be likely to pay within a reasonable period, any sums due under the mortgage National and provincial bank v Lloyd

Question 46

Other possible limitations on the right of possession

Answer 46

Quennell v Maltby- court of equity could restrain possession whenever there is no reason for that possession Albany Home Loans v Massey- mortgagee cant be granted possession where there is UI on one JT, even if the other remains living there Abuse of possession process if they use the rights and powers for a purpose other than enforcing payment Mortgagee can appoint a receiver to manage and administer mortgaged property Foreclosure extinguishes equity of redemption- mortgagee acquires the freehold/leasehold