Mortgages Flashcards
(35 cards)
What is a mortgage?
- form of proprietary security interest
Example of a mortgage
- bank / lender advances money to the borrower
- borrower gives lender a proprietary interest in his asset as security (mortgage)
- if the borrower doesn’t pay back the loan, lender can sell asset to recover what is owed
3 uses of mortgages?
quote by Cooke
- purchasing residential property
- financing small businesses
- mortgage-backed securities in financial markets
for 1. -> the unaffordable home is security for the loan that makes the home affordable
Why are mortgages advantageous for lenders? (3)
- encourage performance of the obligation very powerfully -> borrower will lose house otherwise
- effective remedy in case of non-performance -> faster & cheaper because they don’t need to go to court
- benefits in insolvency context -> lender is in better position than those with unsecured interests
Why are mortgages risky for borrowers? (2)
- pressure to perform may be excessive
- risk of losing asset -> e.g. home
What do K. Gray and S. F. Gray say about mortgages?
- important to strike right balance between lenders and borrowers
- conflict of interest between the need to promote efficient banking & the need to ensure residential security and social justice
What is the person who borrows money from the bank known as? (5)
- borrower
- debtor
- grantor of mortgage charge
- mortgagor
- chargor
What is the bank known as? (5)
- lendor
- creditor
- grantee of mortgage charge
- mortgagee
- chargee
in legal terms, who gives the mortgage?
the borrower NOT the bank
What is the equity of redemption?
common law definition?
- rights of mortgagor minus rights of mortgagee
- Ultraframe (UK) v Fielding: an equitable interest […] the sum total of the debtor’s rights in the asset
What is negative equity of redemption?
when the rights of the mortgagee (bank) are greater than the rights of the mortgagor
What are the different types of security over land? (2)
- mortgage
- charge
What happens to the interest over the property in a mortgage?
- borrower transfers his existing interest to the lender to secure performance of an obligation
- subject to an obligation on the lender to return that interest once the debt is repaid (borrower’s right to redeem)
What happens to the interest over the property in a charge?
common law - quote
- borrower creates a new proprietary interest over his property to secure the performance of an obligation
- borrower remains legal owner of property
- lender cna look at charge property to satisfy the debt
- upon performance of obligation, the charge is destroyed
Re Cosslett Contractors Ltd [1998] -> a charge needs an asset to be appropriated to the satisfaction of a debt
Statute for mortgages & charges
- s.85(1) LPA 1925
- s.23(1) LRA 2002
- s.4(1)(g) LRA 2002
- s.51 LRA 2002
- s.87 (1) LPA 1925 -> charge by deed by way of legal mortgage is only form of security over registered land
What are the 3 requirements to create a legal mortgage?
- borrower must have a legal estate in land (freehold or leasehold)
- legal charge must be created by deed (s.52(1) and s.85(1) LPA 1925)
- grant of a legal charge needs to be completed by registration (s.27(2)(f) LRA 2002)
When is an equitable mortgage required?
How to create it over a legal estate?
- if requirements for legal mortgage are NOT satisfied
- Agreement to create a legal charge must comply with requirements of s.2(1) LPMPA 1989
- where no deed has been used -> lender has a right to call for specific performance of the borrower’s promise to grant the charge -> includes borrower executing a deed
- where deed has been executed, but no registration, lender can acquire legal mortgage by registering
How to create an equitable charge over an equitable estate?
What kind of situations fall under this category?
- signed writing -> s.53(1)(a) LPA 1925
- beneficiary charges their interest under a trust as security for a loan
- lender has bargained for a legal charge but lost priority dispute, so charge doesn’t have priority against all beneficial owners of property
Example
beneficiary charges their interest under a trust as security for a loan
- A has legal title and holds it on trust for A and B
- B wants to raise money for his/her business
- B can charge the interest as an equitable charge.
2 Examples
A lender has bargained for a legal charged but lost a priority dispute, so its charge does not have priority against all the beneficial owners of the property
1
- A holds legal title on trust for A and B
- A, without telling B, grants mortgage to C bank
- C bank will take effect over A’s equitable share as A consented to the mortgage, and over B’s share only if C bank has priority
- If charge registered as legal: rectification of the register possible
2
- A and B hold legal title on trust for themselves
- A forges B’s signature to grant a mortgage to C bank
- C bank’s charge will take effect as an equitable charge over A’s share, and over B’s share only if C bank has priority
- Rectification of the register possible.
What is the nature of the right to possession for mortgagee?
statute & common law
- s.87 LPA 1925
- Four-Maids Ltd v Dudley Marshall (Properties)
Purpose of the right to possession for mortgagee?
common law?
- can only take possession for the purpose of enforcing the security
- Quennell v Maltby [1979]
- Co-operative Bank plc v Philips [2014]
Limitations of mortgagee
- liability of the lender to account
- potential criminal liability
Liability of the lender to account
2 cases
limitations of a mortgagee
- mortgagee will be treated as owing a duty of care to borrower in respect of management of the property -> will be liable to account to the borrower on a ‘wilful default basis’
- White v City of London Brewery Co [1889]
- Cukmere Brick Co Ltd v Mutual Finance Ltd [1971]
