What is a legal mortgage?
a mortgage is capable of being a legal interest in land.
Formalities are:
Deed + Registration
Deed
Intended to be a deed
Validly executed - by seller with witness
Deed must be delivered
Registered at land regsistry
What is an equitable mortgage?
- Mortgage of an equitable interest
o Where borrower holds an equitable interest in the land – any mortgage of that interest will be equitable in nature. Can be created very informally. Only need be in writing and signed by grantor. - Defective legal mortgage
o Not granted by a valid deed
How is a mortgage discharged?
DS1 FORM
IF ONLY PART OF THE LAND IN TITLE IS RELEASED THEN DS3
Equity of redemption?
- Equity recognises borrower as true owner and protects borrowers’ rights as owner. – known as equity of redemption.
Postponement of the right to redeem - It is in lenders interest to keep borrower on hook for as long as possible
- Courts look at clauses which postpone legal date for redemption very closely and will not allow a lease which prevent redemption altogether.
Options to purchase - A mortgage may include an option for lender to purchase mortgaged property
Collateral advantage
Lender is entitled only to repayment of capital advance plus interest
- - a collateral advantage will be struck out if it is unconscionable
- Example is solus tie – like making it a condition to buy supplies form a company – generally upheld in commercial transactions if they end within the mortgage term
Unconscionable terms
Equity of redemption gives borrower protection for unconscionable terms
- Courts have a well-established inherent equitable jurisdiction to strike out oppressive unconscionable terms. – more than simply unfair or unreasonable
Undue influence?
If consent to a transaction is treated in such a way that the consent ought not to be fairly treated as expression of a person’s free will – then not allowed to stand
- Court set out two kinds of undue influence
- Overall acts of improper pressure – like unlawful threats
- Situations where on party has influence of ascendancy over the other and the first party takes advantage of that influence.
Taking advantage of influence of ascendancy in a relationship - Like husband or wide
- No definitive list
- There is a list where there is an irrebuttable presumption – parent and child, guardian and ward, trustee and beneficiary, solicitor and client. Husband and wife do not give rise to this presumption.
Proof of taking advantage of influence in relationship - Burden is on person alleging this
- Basic principle on how this might be proven
o If there is a relationship of trust and confidence
o Transaction which requires explanation
When bank is put on inquiry notice of undue influence it MUST.
- - Write to spouse who is granting the mortgage explain that it needs confirmation from an independent solicitor that they have explained the transaction to the spouse.
- Ask that party to nominate a solicitor
- Must not proceed until confirmation receives from independent solicitor
Priority of mortgages over registered land?
Legal mortgages
- Once registered – they take effect as a registered charge
- Priority on register depends on order its registered in
Equitable mortgage
- Equitable mortgage rank in order of creation
- Basis rule of priority because it can be created without registration
o Equitable interest can be protected by entering a notice on the charged register.
o If protected by that it will take priority over a subsequent legal mortgage
o Doesn’t affect priority over an earlier equitable mortgage that was not protected.
Rights of the lender?
The lender who holds security of a legal mortgage – has a wider choice or remedies
An equitable mortgage has the same rights to bring a debt action and to apply for foreclosure and to appoint a receiver it does not gave right to repossess or sell without a court order.
Debt action
- Contractual debt action is a personal action against the borrower –
- If borrower is unable to make mortgage payments unlikely to be able to pay damages
Possession
- May take possession of mortgaged property
- Taking physical possession is a practical step which enables the lender to offer the priority for sale with vacant possession.
- Must be a last resort
Sale
- Strongest right – if exercised borrower loses all rights to the property
Receiver
- Acts as a manager of mortgaged property – where property needs management – receiver is an administrator whose function is to get an income form land before sale.
Foreclosure
- Historic way – which is rarely used
- Allows lender to take montaged property ins satisfaction of debt meaning that freehold will vets in lender and borrower will lose all rights.
- Procedure is lengthy and complex
Lenders right to possess?
Exercising the right to poses
- Not strictly necessary for lender to obtain a court order priority to taking possession
Limits on right to posses
- Criminal law act 1977 s6 it a criminal offence to use or threaten violence for purpose of gaining entry to property
Statutory jurisdiction to postpone
- Where the mortgage under a mortgage of land which consists of or includes a dwelling house brings an action in which he claims possession of the mortgaged property.
- Power to postpone the date for delivery of possession for such a period as court thinks reasonable.
Scope of AJA S36
Section does NOT
- Enable court to prevent lender from exercising its right to possess altogether
- Enable the court to postpone possession in cases where there has been in application for an order for possession
- Enable the court to prevent a lender from exercising a power of sale without first obtaining a court order
Section does:
- Enable court to – adjourn possession proceedings
- Stay or postpone execution of the possession order
- In order to do this, it must appear to the court that the borrower is likely to be able to pay any sums due within a reasonable time.
The right to sell?
Express power of sale
- Most mortgage documents will include an express power of sale and will set out exactly how and when the power will be exercised.
Implied, or statutory power of sale
- In absence of an express power – it can be implied into a legal mortgage under LPA 1925 s1010
- A mortgage where the mortgage is made by deed shall have following powers.
Lenders statutory right to sell
- When mortgage money has become due
- - power of sale arises as soon as one portion of capital is due.
