4. Principles of Mortgage & Property Law Flashcards
Mortgagee & mortgagor, who is who?
Mortgagor is the borrower
Mortgagee is the lender
What are the three significant property acts of 1925?
Law of property act
Land charges act
Land registration act
What do the following terms describe?:
- Estate in fee simple absolute in possession
- estate for a term of years absolute
Freehold and leasehold respectively. 
Fee simple is the right for property to be inherited on death
Absolute means no limits on ownership
In possession means immediate entitlement to occupation, nobody else has a prior claim
Term of years absolute is the leasehold estate, which has a limited duration that must be fixed and certain
The 1925 act introduced the system of land registration for all property. They also introduced legal remedies for the lender in the event of default or breach of the terms of the mortgage by the borrower.
What are some of the other key provisions introduced?
A person under the age of 18 cannot hold an interest in land // where two or more loans are secured on a property, the priority is determined by the date of the registration // The borrower has a right to let the mortgage property unless the mortgage deed states otherwise (in practice all lenders include a clause in their mortgage deed that specifically excludes this right) // The lender is not liable for any loss made on the execution of its power of sale
What are the 2 types of mortgage?
Mortgage by way of legal charge - The property is owned by the borrower from the outset. A legal charge is a deed that states the property has been charged with the debt (the loan) as security for the lender
Mortgage by demise - The lender becomes the legal owner of the property when it is purchased, and legal ownership is transferred to the borrower when the mortgage is fully repaid. (This arrangement was very rare and was abolished in the Land Registration Act 2002 for new mortgages created for registered land. It can now only be arranged on unregistered property
What are second and subsequent mortgages?
It is where a borrower already has a mortgage and then arrange a small borrowing against the same property through a different lender.
The first charge holder usually inserts a clause in the mortgage deed allowing it to make further advances as part of the first charge, rather than on a second charge basis. For this reason a second charge is almost invariably with a different lender
How is the priority of charges determined?
With registered land the second charge will be registered with the relevant registry and the date order of registration generally determines which takes priority in the event of default.
With unregistered land the lender that holds the title deeds as security will be regarded as the first charge holder. Subsequent charges will be recorded in the Land Charges Registry, with their priority set in date order
How are charge holders repaid in the event of borrower default & the property is sold?
The first mortgage will benefit first from any sale proceeds before any surplus is available for the second, and so on. Subsequent mortgages received the share of any surplus in order of priority until each of their claims is satisfied, or until the sale proceeds run out. If there is anything left at the end, it must be repaid to the borrower.
If the first mortgagee fails to receive enough from the sale of the property to repay its loan, the second and subsequent mortgages will get nothing. Therefore a lender will only accept a second or subsequent mortgage if it feels there is sufficient equity in the mortgage property to comfortably cover both earlier mortgages and its own. 
What are legal and equitable owners?
It is possible for up to 4 people to be registered as legal owners of a property. If there are more than 4 potential owners, 4 will be registered as legal owners. Those who have a right to a share in the property but are not shown as legal owners at the Land Registry are referred to as equitable owners (or beneficial owners).
What is joint tenancy?
It is the most common type of joint ownership, the default type. It means that each joint owner owns 100% of the property. On death of any joint owner the surviving owner will take over legal ownership of the property. The transfer is automatic and cannot be overridden by any provisions made by a joint tenant in a will or through the laws of intestacy.
What is tenancy in common?
The joint legal owners are regarded as one single owner but are trustees of the land. However, each legal owner is also the beneficial owner of a defined interest (share) of the equity in the property, as agreed between them.
On the death of a joint tenant in common, Legal title to the whole property passes to the survivor who continues to hold it as a trustee in land. There is now one legal owner of the property.
It is the beneficial interest (not legal ownership) that a joint tenant can leave to their chosen beneficiaries on their death.
The surviving legal owner, as trustee of the land, has a duty to look after the interests of a beneficial owner until a new joint legal owner can be appointed on the property sold, if appropriate.
What factors might affect freeholder rights?
There is a requirement to meet local authority conditions, for example, those relating to property use and alterations // The owner is subject to local and national planning legislation which may affect both the use of the property and the extent to which it can be altered // there may be covenants or easement that apply to the land // there may be restrictions imposed by an earlier owner // former public utilities, no private companies providing water electricity and gas, have certain rights over the land i.e. water companies on the rainwater that falls on the property
Why are many lenders reluctant to lend on freehold flats?
The buildings invariably have common areas for which there is no clear accountability. The ceiling of one person’s flat is another person’s floor, so it is unclear who is responsible for damage. If the property is leasehold, there is a freeholder who determines who has responsibility
Why can flying/creeping freehold be a major problem?
Because the owner of the land may fail to maintain their property which could result in damage to the property with the flying/creeping freehold.
Lenders are usually reluctant to lend on a property with flying freehold unless there is an enforceable rate of support, shelter and repair and appropriate rights of entry. I.e. they must be an enforceable requirement on the landowner to maintain the property to prevent damage and to allow access to carry out any repairs to the property with the flying freehold.
Lenders will also often recommend a suitable indemnity policy be placed on risk by the proprietor to protect themselves in the event of any adverse consequences of flying/ creeping freehold.
What is a leasehold estate?
Leasehold estate is a less permanent form of estate than freehold. This is a form of land tenure where a person has rights over the land for a specific period only.
Leasehold is a legal estate in land and occurs where the freeholder (the lessor) agrees to lease the land or property to another (the lesse). A typical lease may have an original term of 99 years but it could be as long as 999 years.
