Mortgages

Question 1

What is a mortgage?

Answer 1

A charge over property, using the property as security, granted by the estate owner (the mortgagor) to the lender (the mortgagee), over the mortgagor’s land, usually as security for a loan.

Question 2

What are the two methods of creating a legal mortgage?

Answer 2

• Lease for term of years absolute
• Charge by deed expressed to be by way of legal mortgage

Question 3

What is a lease for a term of years absolute?

Answer 3

A long lease (e.g. 3,000 years) granted by borrower to lender, under s. 85 LPA, applicable only to unregistered land.

Question 4

What happens to the lease upon repayment of the mortgage?

Answer 4

The lease will automatically terminate upon repayment of the mortgage.

Question 5

What is a charge by deed expressed to be by way of legal mortgage?

Answer 5

A deed executed by the mortgagor in favor of the mortgagee, stating that the property is charged with the debt, under s. 87 LPA.

Question 6

What rights does a mortgagor have?

Answer 6

• Right to redeem
• Protection from unconscionable terms
• Protection from undue influence
• Right to lease
• Right to possession
• Right to sue

Question 7

What is the equity of redemption?

Answer 7

The right of the mortgagor to redeem the mortgage at any time, even after the legal date for redemption has passed, with certain notice requirements.

Question 8

True or False: A mortgage deed can unduly restrict the mortgagor’s right to redeem.

Answer 8

False.

Question 9

What is required to protect a party from undue influence in a mortgage?

Answer 9

The mortgagee must ensure that the non-benefiting party obtains independent advice and understands the mortgage transaction.

Question 10

What is the right to lease under s. 99 LPA 1925?

Answer 10

The mortgagor’s right to grant leases, which can be excluded by the mortgage deed.

Question 11

What is the right to possession for the mortgagor?

Answer 11

The mortgagor retains possession of the property until a demand for possession is made by the mortgagee.

Question 12

What rights does a legal mortgagee have when the mortgagor defaults?

Answer 12

• Right of foreclosure
• Right to possession
• Power of sale
• Power to appoint a receiver
• Action for repayment
• Power to insure
• Right to tack further advances
• Right of consolidation

Question 13

What is the right of foreclosure?

Answer 13

If the mortgagor defaults, foreclosure vests the mortgagor’s title to the property in the mortgagee, extinguishing the mortgage.

Question 14

What is the power of sale?

Answer 14

A mortgagee’s right to sell the mortgaged property, which can be exercised without going through the courts.

Question 15

What conditions must be satisfied for a mortgagee to exercise the power of sale?

Answer 15

• Notice served on the mortgagor requiring repayment not complied with within 3 months of service of notice
• Interest due not paid for two months
• Breach of a provision of the LPA 1925 or mortgage deed, other than a covenant for the payment of a mortgage sum or interest

Question 16

What is tacking in the context of mortgages?

Answer 16

The ability of a prior mortgagee to add further advances to their existing mortgage under certain conditions.

Question 17

What is the priority rule for multiple mortgages on the same property?

Answer 17

Each mortgage ranks in accordance with the date of its creation.

Question 18

What is the effect of possession of title deeds in unregistered land?

Answer 18

Possession of title deeds by the first mortgagee secures their priority over other mortgages.

Question 19

What is required for a legal mortgage on registered land to be recognized?

Answer 19

It must be created by deed and registered in the Land Registry.

Question 20

How are equitable mortgages treated in terms of priority?

Answer 20

Equitable mortgages rank in order of creation date and can be overridden by subsequent legal mortgages.

Question 21

What is the significance of a notice on the title register for an equitable mortgage?

Answer 21

It protects the equitable interest and preserves its priority over subsequent legal interests.

Question 22

What are the notice requirements for the right to redeem

Answer 22

6 months notice of intention to redeem, or 6 months interest in lieu of such notice

Question 23

To whom does the protection from undue influence apply?

Answer 23

Mortgagors.- specifically persons who are in a non-commercial relationship jointly own property and and one owner obtains a mortgage which the other does not directly benefit.

Question 24

What must the mortgagee do as per Royal Ban of Scotland v Etridge (No 2) (1998)

Answer 24

A mortgagee must ensure that both parties are advised by a solicitor of their choice, communicate with each party directly and obtain the solicitor’s written confirmation that full advice is given.

Question 25

What is the right to sue?

Answer 25

s98LPA- mortgagor in possession who has not been notified that the mortgagee intends to take possession , may bring any necessary action in relation to land

Question 26

Why is the right of foreclosure unpopular?

Answer 26

because if property is worth more than the mortgage debt court more likely to order a sale than foreclosure. and if property is worth less than the loan, the mortgagee will be unable to sue for the balance.

Question 27

What are the two ways possession may be taken by a mortgagee in residential cases?

Answer 27

I) The lender will usually apply for an order for possession form the court, hearing held and order made if appropriate II) Common law right to re-enter the property peacefully and take possession w/out court proceedings

Question 28

What is the effect of a court order allowing possession of a property in favour of a mortgagee

Answer 28

- borrower must hand over possession of the property to the lender within 28 days of the date of the order being made.

Question 29

What is the effect of Section 36 of the Administration of Justice Act 1970

Answer 29

Discretionary powers to grant relief to the borrower in repossession proceedings, where financial difficulty is likely to be temporary

Question 30

What is the legal date of redemption

Answer 30

Specific day on which borrower's obligation under the mortgage becomes due for full repayment. Usually expressly stated in the mortgage deed.

Question 30

To what situations does the doctrine of mutual benefit and burden apply

Answer 30

only in situations concerning dwelling houses + where proceedings are brought, not when a lender uses a self-help remedy eg entering the property and taking possession

Question 31

What does the buyer from a mortgagee have to check ?

Answer 31

That mortgagee's power of sale has arisen, not that it is exercisable.

Question 32

When does a power of sale arise?

Answer 32

mortgage is made by deed and when the money is due if payable by instalments, the power arises as soon as any instalments is in arrears.

Question 32

what is the equitable duty owed to a mortgagor by the mortgagee

Answer 32

to take reasonable care when putting the property up for sale to obtain best price reasonably obtainable at the time of sale

Question 33

When does tacking take place in unregistered land?

Answer 33

- the subsequent mortgagee consents to the tacking taking place - the prior mortgagee had no notice of the subsequent mortgage when making the further advance - the mortgage entered into by the prior mortgagee imposes an obligation on him to make further advances.

Question 34

Under s49 of the Land registration act 2002, when will tacking of further advances occur in registered land?

Answer 34

- Further advances are made with the subsequent chargee's agreement - the subsequent chargee has not given notice of their charge to the registered chargee before the advance - the advance is made under an obligation entered on the Register - the borrower and lender agree a maximum secured sum, and note of that agreement is made on the Register.

Question 35

what does it mean to have subsequent chargee's agreement ?

Answer 35

You take out a second mortgage (the subsequent charge) , then a bank you alreayd owe money to agrees that any extra money they lend you now ranks in front of that second mortgage

Question 36

No notice given by the subsequent chargee before the advance

Answer 36

You get a second mortgage on your home, but that second lender officially tells the first lender about it. Then you borrow more money from the first lender.

Question 37

Advance under an obligation entered on the Register

Answer 37

The mortgage deed or some formal agreement (a covenant) that's recorded in the Land Registry says the lender is allowed to make further advances.

Question 38

What is an agreement on a capped maximum sum, noted on the register

Answer 38

You and your first lender agree up front, and record on the register, that the mortgage can secure up to eg £500,000 , even if you only borrowerd £300,000 to start.

Question 39

In unregistered land, how does a first legal mortgage retain priority and how can subsequent mortgagees protect their interests?

Answer 39

First legal mortgagee: Keeps the title deeds, which evidences their priority without needing registration Subsequent legal mortgagees: Register a class C(i) Land Charge (puisne mortgage) to protect their priority Equitable mortgage (deposit of deeds): Don't require land charge registration, but rank below any legal mortgage registered as a Class C(i) charge or other later legal interests.

Question 40

On registered land, how must a legal mortgage be created, and how is priority determined ?

Answer 40

Created: Must be created by deed and registered in the Land Registry to be legally effective Priority: Since 1926- Determined by the order of registration on the Charges Register Pre-1926 (historical): Depended on the order in which mortgages were created.