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Flashcards in Mortgages Deck (49)
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1

Santley v Wilde [1899]

Mortgage is a conveyance of land as security for payment of debt or discharge of another obligation

2

Today's Definition of a Mortgage

Loan of cash secured by the mortgagee being given rights over the property offered as security by the mortgagor

3

Formalities 

Legal Mortgages

  • Capable of being a legal interest
    • S.1(2) LPA 1925
  • Must be created by deed to be legal
    • Ss. 52, 85, 86 & 87 LPA 1925
    • S.1 LP(MP)A 1989 – clear on its face it’s a deed, signed by mortgagor, witnessed properly, and delivered
  • And must be substantively registered
    • S.27(2)(f) and s.4 LRA 2002
  • If not created properly, then may be equitable

4

Formalities

Equitable Mortgages

  • Failed legal mortgages because don’t follow formalities but only if comply with:
    • S. 2 LP(MP)A 1989 – in writing, containing terms, and signed by both parties
    • United Bank of Kuwait plc v Sahib [1996] – equity won’t recognise the deposit of deeds as an equitable mortgage any longer
  • Mortgages of equitable interests – very important in commercial transactions as avoids formalities and cost of legal mortgage
    • S.53(1)(c) LPA 1925 minimum but usually s2 – in writing and signed by the grantor but usually in accordance with S. 2 LP(MP)A 1989
  • Registered land:  s32 Notice /s29
  • Unregistered Land:  C(iii) Land Charge /s4(5) LCA 1972

5

CONTRACTUAL RIGHT TO REDEEM

Paying back all of the money in return for lender giving up propriertal rights – often 20-25 years in residential

6

Legal Date for redemption

Mortgages

  • Date on which the borrower is due to repay – normally 1-6 months from the date the borrower borrowed the money. Only valid for 24 hours.
    • If doesn’t repay, loan cannot be repaid until the end of the term
    • Very few borrowers will be in a position to take advantage of this so it’s of very limited value
  • Equity stepped in to give the borrower more protection

 

7

Equitable Right to Redeem

Mortgages

  • Equitable Right to Redeem: arises AFTER the contractual date for redemption has passed
  • Much more generous than legal contractual right; equity says a borrower can redeem at any time after the legal date for redemption has passed until the end of the mortgage term

8

Delaying the Legal Date for Redemption

Mortgages

  • If the legal date is pushed back so is the equitable right to redeem.
  • Lenders don’t want you to pay money back early as they will only earn interest if you delay paying back the loan.
  • In domestic mortgages, courts are more generous to borrowers, but this may be okay in commercial transactions as long as the right to redeem remains real

9

Knightsbridge Estates v Byrne [1939]

Delaying the Legal Date for Redemption

Mortgages

If borrower knows what they're getting into, enters of own free will, and gets back unencumbered free will land, courts are unlikely to bring forward the legal date for redemption

Commercial mortgage of freehold property (pub) – legal date for redemption 40 years after loan so equitable right to redeem didn’t kick in until 40 years and 1 day; borrower wanted to redeem early and wanted the court to declare the clause was invalid.

Borrower was also getting a very low interest rate in return so wasn’t unconscionable or oppressive.

10

Fairclough v Swan Breweries [1912]

Delaying the Legal Date for Redemption

Mortgages

If borrower does not get back unencumbered or seriously less encumbered free will of land, courts likely to allow legal date of redemption to be brought forward.

Commercial mortgage of leashold property (pub) mortgaged to brewery – At time mortgage was granted, lease of pub only had 17 years to run, legal date of redemption said couldn’t be redeemed until 6 weeks before the end of the lease. Borrower wanted to redeem earlier and went to court to get the court struck out.

Court agreed and said if they upheld this clause, borrower wouldn’t get what they put in as would have a lease with 6 weeks to run as opposed to 17 years. Borrower was allowed to redeem early.

11

Options to Purchase

Mortgages

Can’t have a clause in a mortgage that the lender has an option to purchase the property because if they exercise that option, the property goes to the lender and prevents the borrower from repaying the loan and getting the property back unencumbered

12

Samuel v Jarrah [1904]

Options to Purchase

Mortgages

Options to purchase granted to lenders in mortgage deeds will be void

13

Reeve v Lisle [1902]

Options to Purchase

Mortgages

Option to purchase may be valid if given by a subsequent independent transaction – lender has to show option granted was completely independent and separate

14

Warnborough v Garmite [2003]

Options to Purchase

Mortgages

Court must look at the substance of the transaction – mortgage and option granted on same day, but part of a separate sale and purchase deal and so allowed to stand

15

Collateral Advantages

Mortgages

  • Collateral advantages e.g. admin fee, taking out insurance so get commission etc:
  • Not allowed in residential transactions, but may be allowed in commercial transactions (breweries loan money to individuals to open pubs but have to buy beer from brewery or oil companies to petrol stations but have to buy petrol from them – solus ties

Advantage to lender must stop when mortgage is repaid

16

Noakes v Rice [1901]

Collateral Advantages

Mortgages

Advantage to lender must stop when mortgage is repaid

Pub tenant entered into a mortgage arrangement where they agreed to only sell the lenders wine and spirits for length of lease (26 years) even after mortgage had been repaid. Court didn’t allow it as devalued equity of redemption – at beginning of mortgage, pub was a freehouse, but now was a tied house

17

Biggs v Hoddinott [1898]

Collateral Advantages

Mortgages

Provided the collateral advantage stops within the mortgage term, it may be allowed.

18

Kreglinger v New Patagonia Meat Company [1913]

Collateral Advantages

Mortgages

Collateral advantages may be allowed if genuinely independent of mortgage transaction

19

Esso Petroleum Co Ltd v Harper’s Garage (Stourport) Ltd [1968]

Collateral Advantages

Mortgages

Collateral advantages may be allowed if genuinely independent of mortgage transaction

  • A collateral tie, even if wholly independent, also risks being invalidated on public policy grounds if it is in restraint of trade. 21 year collateral tie struck down by 5 year upheld.
  • Must not be unconscionable

20

Unconscionable Terms

Mortgages

Courts have the power to strike down individual terms of mortgage terms if they deem the oppressive

21

Cityland Properties v Dabrah [1968]

Unconscionable Terms

Mortgages

Court will strike down terms where lender had taken advantage of their position and can't justify the terms

Borrower had been a tenant of lender for 11 years, lease was coming to an end and lender made it clear they weren’t going to renew the lease – under pressure to agree to their suggestion to buy the property from them – landlord said they would lend him the money and so borrower signed up. Interest rate was 19% (base interest rate now is 0.2%), borrower agreed that if he defaulted he would pay a premium of 57% - court didn’t allow it as an unconscionable term

22

Multiservice Bookbinding v Marden [1977]

Unconscionable Terms

Mortgages

Court will not strike down unconscionable terms where parties had equal bargaining power

  • Postponement of legal date of redemption for 10 years, interest rate of 35% - borrower went to court to have terms struck down but court refused because had equal bargaining power – borrowed to expand business, had legal advice, and went in with eyes open, taken a risk paying in Swiss francs based on exchange rate staying the same. Lender (Mr Marden) was a private individual and had invested his life savings and was entitled to make a profit.

23

Falco Finance Ltd v Michael Gough [1998]

Unconscionable Terms

Mortgages

Term in mortgage that even if borrower was late in paying by 1 day, interest rate increased by 5% for whole term – struck down as unfair

24

Davies v Direct Loans [1986]

Unconscionable Terms

Mortgages

High interest rate justified as borrower was self-employed and had a poor credit history and so lender was taking a risk

25

Paragon Finance v Nash [2002]

Unconscionable Terms

Mortgages

High interest rate justified as lender itself was suffering financial difficulties so was paying more for the money that it was borrowing so was passing on higher cost.

26

Undue Influence

Mortgages

Where a loan has been secured on a property, but not for everyone’s benefit – e.g. husband and wife have granted a mortgage over their loan to release capital for the husband’s business – house may be in both names and wife may have to sign the document – lender must take steps to ensure wife has been fully informed of transaction and ramificationsif not, wife’s rights rank second ahead of the bank’s rights and so the mortgage can be declared void if undue influence

27

Barclays Bank plc v O’Brien [1994]

Undue Influence

Mortgages

  • In certain circumstances, the lender will be “put on enquiry” in relation to undue influence because of something in the nature of the transaction itself.

 

  • O’Brien needed money for business and mortgaged house to bank as security
    • Loan not for benefit of all borrowers (only O’Brien’s benefit and not his wife) but O’Brien did not give his wife the details (said it was a s-t loan but long l-t, was for 60k but actually 150k). Bank official did not explain the situation and just got her signature; business failed and bank tried to repossess the property; Mrs O’Brien successfully argued that mortgage was unenforcable against her on grounds of misrepresentation and undue influence.
    • Bank were aware of what Mr O’Brien had told her and they were in a much better position to give her the real position and independent advice

28

CIBC Mortgages plc v Pitt [1994]

Undue Influence

Mortgages

Lender will not be liable for undue influence where they have not been put on enquiry

  • Husband and wife mortgaged home to pay for a new holiday home – joint benefit
    • Husband used money not with her approval to bet on the stock market; lost the money and court ruled wife couldn’t argue undue notice as was nothing to put the bank on notice there was something to be concerned about.
    • Loan was for joint benefit

29

RBS v Etridge [2001]

Undue Influence

Mortgages

  • Where the lender has been put on enquiry must show it took reasonable steps to advise of risk
    • Insist the party take independent advice from a solicitor in the other party’s absence.
  • Claimant seeking to have the charge set aside must show that she placed trust & confidence in the other party and that the transaction called for explanation.
  • Applies to any situation where a lender is putting up money for a borrower

30

Equity and Law Homes Ltd v Prestidge [1992]

Undue Influence

Remortgages

Where the spouse validly consents to an initial mortgage, but not to a subsequent re-mortgage for a larger sum, the wife will generally only be bound to the extent of the initial mortgage sum.