Mortgages Flashcards
(32 cards)
What is a mortgage in land law?
A mortgage is a proprietary interest in land granted by a borrower (the mortgagor) to a lender (the mortgagee) as security for a loan. The mortgage gives the lender rights over the land, including the right to possess and sell the property in the event of default.
What is commonly misunderstood about mortgages?
In everyday language, people say a bank gives them a mortgage. Legally, the bank provides a loan, and the borrower grants the mortgage over their property as security.
What are the formalities for creating a legal mortgage?
Must be created by deed
Deed must comply with LP(MP)A 1989, s 1
Must be registered at Land Registry
Without registration, it cannot operate at law
What are the requirements of a valid deed under LP(MP)A 1989, s 1?
Clearly states it is a deed
Validly executed (signed and witnessed)
Delivered (usually by dating)
When does an equitable mortgage arise?
Mortgage of an equitable interest: writing signed by grantor
Defective legal mortgage: if not by deed or not registered but satisfies LP(MP)A 1989, s 2, it becomes an equitable mortgage (a contract to create a legal mortgage)
How is a mortgage discharged?
A mortgage is only fully discharged when it is removed from the Charges Register at Land Registry using the appropriate discharge form.
What is the equity of redemption?
A collection of equitable rights protecting the borrower, based on the principle that a mortgage is security for a loan and nothing more.
What are the core rights under the equity of redemption?
Equitable right to redeem
No prevention or postponement of redemption
No collateral advantages
No unconscionable terms
Can a mortgage clause postpone redemption indefinitely?
No. There must be no clog or fetter on the borrower’s right to redeem.
When will a postponement clause be struck down?
Fairclough v Swan Brewery [1912]: struck down because the lease had only 6 weeks left, making it worthless
Knightsbridge v Byrne [1939]: upheld a 40-year postponement as it was commercial, freehold, and offered favourable terms
Can a lender obtain an option to purchase in a mortgage?
Not valid if granted with the mortgage – it is a clog on the equity of redemption
What is a collateral advantage in the context of mortgages?
A benefit extracted by the lender beyond the repayment of the loan and interest, e.g. solus tie. Permissible only if not unconscionable, repugnant to redemption, or lasting beyond the mortgage term.
When is a solus tie void?
Noakes v Rice [1902]: void as it exceeded the mortgage term
Biggs v Hoddinott [1898]: valid when limited to the mortgage term
What makes a term unconscionable?
Imposed in a morally reprehensible way, often due to inequality of bargaining power or exploitation of a borrower’s vulnerability.
When may a mortgage be set aside for undue influence?
When one party (e.g. a spouse) is induced to enter a mortgage for another’s benefit (e.g. a business) under undue influence and the lender has not taken reasonable steps to ensure informed consent.
What steps must lenders take under RBS v Etridge (No 2) [2001]?
Write to the non-benefiting party
Ensure they receive independent legal advice
Provide documents and explanations to solicitor
Obtain solicitor’s certificate confirming advice was given
What must the solicitor do to advise against undue influence?
Meet the party alone
Explain risks and rights in plain language
Keep notes and send written confirmation
Sign a certificate for the bank
How is priority of legal mortgages determined?
By registration order under LRA 2002, s 48. Even if created earlier, a legal mortgage has no effect until registered
How is priority of equitable mortgages determined?
By order of creation (LRA 2002, s 28). However, if protected by notice, it takes priority over a later legal mortgage
What happens if an equitable mortgage is not protected by notice?
It may lose priority to a subsequent registered legal mortgage.
Can parties modify the order of priority?
Yes, via a deed of postponement or intercreditor deed. These must be registered at the Land Registry.
Why do lenders require occupiers to postpone their rights?
To ensure the lender can exercise its right to possess and sell if the borrower defaults.
What remedies are available to a lender with a legal mortgage?
Debt action
Possession
Sale
Appointment of receiver
Foreclosure
What is a debt action?
A personal action to recover mortgage debt. Used where there is negative equity. 12 years to recover capital; 6 years for interest.
