Mortgage - priority disputes

Question 1

Example of a priority dispute

Answer 1

• A holds a house on trust for A and B
• A mortgages the house to C, without telling B
• A defaults on repayment of the mortgage loan
• Does C have priority over B?

Question 2

Who has priority?

Answer 2

• If answer to any of Q1-4 is yes, C has priority
• if answer to Q1-5 is no, B has priority
• If answer to Q1-4 is no, Q5 is yes, see Q6
• If answer to Q6 is that B has overriding interest, B wins priority dispute
• If answer to Q6 is that B doesn’t have overriding interest, C wins

Question 3

What are questions 1-4?

Answer 3

1. Has B consented to the mortgage?
2. if B hasn’t consented, did C’s interest arise first in time before B’s (s.28 LRA 2002)
3. was the mortgage used to finance purchase of property (Abbey National BS v Cann [1990])
4. Did A’s grant of the mortgage overreach B’s interest

Question 4

What is question 5?

Answer 4

Has C triggered section 30 LRA 2002
- was C’s mortgage registered? s.27 LRA 2002
- was C’s mortgage given for valuable consideration

Question 5

What is question 6?

Answer 5

• Does B have an overriding interest as a person in actual occupation of the property (Sch 3 para 2 LRA 2002)
• was B occupying the property?
  -> if yes, B has an overriding interest UNLESS
  -> B’s occupation wouldn’t have been obvious on a reasonably careful inspection of the land and C didn’t have knowledge of B’s interest (Sch 3 para 2 (c))
  -> B was asked at the time of mortgage whether she had an interest in land and didn’t disclose it (Sch 3 para 2(b))

Question 6

What are the 2 things to note?

Answer 6

• a lender can enforce remedies available to him against mortgaged property -> e.g. power of sale unde LPA 1925 -> ONLY if mortgage has priority against all other parties
• in a co-ownership scenario where mortgage doesn’t have priority, mortgagee can seek relief by applying under s.14(2) TLATA