9. Mortgages

Question 1

How must a legal mortgage be made?

Answer 1

By deed

Question 2

What happens if a legal mortgage is not validly registered?

Answer 2

Take the form of an equitable mortgage, but will need to be registered on Charges register to bind 3rd parties.

Question 3

What formalities are required to give rise to an equitable mortgage?

Answer 3

Estate contract

Question 4

What formalities are required to give rise to an legal mortgage?

Answer 4

1) Executed as deed
2) Registered
* at the Land Registry (reg. land)
* class (i) charge on Land Charges Reg (unreg. land) or if first mortgagee, ownership of title deeds.

Question 5

How is a legal mortgage over registered land protected?

Answer 5

It must be registered if the mortgagee wants to exercise power of sale.

Once registered, it has priority over competing interests, unless those are previously registered, or overriding.

Question 6

How is an equitable mortgage over registered land protected?

Answer 6

Placing a notice or restriction on the property’s register of title

Question 7

How does one protect a subsequent legal mortgage over unregistered land, when they do not have the title deeds?

Answer 7

Register a class C(i) puisne mortgage land charge

Question 8

How does one protect an equitable mortgage over unregistered land, when they do not have the title deeds?

Answer 8

Register a class C(iii) general equitable land charge

cf.
C(i) puisne is for legal mortgages in the same situation

Question 9

Within what time period of a company creating a charge must it be filed with Companies House?

Answer 9

21 days

Question 10

What steps is a lender expected to follow under the Etridge Protocol to safeguard against undue influence in mortgage transactions?

Answer 10

• vulnerable party should be referred to an independent solicitor for advice;
• lender should provide solicitor with all the relevant financial information on the transaction and any doubts it possesses; AND
• lender should obtain a post-meeting debrief from the solicitor on the advice given.

Question 11

Which relationships give rise to the presumption of undue influence?

Answer 11

Burden is on the lender/party seeking to the enforce mortgage to prove there was no undue influence.

Closed-list of relationships:
- solicitor to client
- trustees to beneficiary
- parent to child (generally not adult, based on whether parent exercises ‘dominion’ over kid)
- religious advisor

NOTE
- Presumption does not apply in marital relationship - ‘actual’ undue influence must be proved.

Question 12

When might a mortgage be set aside?

Answer 12

Where it was entered into as a result of fraud or undue influence.
* Consider whether mortgage was ‘put on inquiry’ on account of purpose of mortgage and parties’ relationship.

ie. transaction that call for an explanation is generally involves one party guaranteeing another’s debt with no personal benefit to them.

Question 13

What are the five rights a mortgagee has once the legal mortgage is registered as a charge?

Answer 13

1. Right to payment
2. Right to possession
3. Power of sale
4. Right to appoint receiver
5. Foreclosure

Question 14

What does the right to foreclosure involve?

Answer 14

Rarely granted where property’s value exceeds the mortgage bet.
* extinguishes the mortgagor’s equity of redembption and mortgagee becomes the registered proprietor of the property.
* Defining characteristics is that there is no need for mortgagee to pay any leftove money i.e. from its subsequent sale (mortagor can find themselves paying off more than their initial debt…)

Question 15

Whilst a mortgagee can usually always take possession, the presence of what on the land adds an additional requirement, and what is this step?

Answer 15

If there is a dwelling on the land, possession can only be sought through the courts.

TOLATA will apply.

Question 16

What are the possible benefits and risks for a mortgagee when exercising their right to foreclosure?

Answer 16

If property has increased in value, the mortgagee gets to keep all the proceeds of sale. No longer obliged to pay over excess amount.

If property decreased in value, foreclosure waives mortgagee’s contractual recourse for any outstanding amount/debt.

Question 17

Prior to exercising their right to foreclosure, what does the pre-action protocol require of first mortgagees?

Answer 17

Engage in open dialogue + agree (where possible) to repayment plan.
* aim to avoid litigation where possible.
* applies only for residential premises.

cf. others can proceed straight proceedings stage.

Question 18

What are the three instances where a mortgagee’s can enforce their power of sale?

Answer 18

1) Notice of default is served on mortgagor and 3 months have elapsed since w/out full repayment of debt; or
2) Interest due is in arrears + left unpaid for 2 months after being due; or
3) Breach of any other “material” term

Question 19

What is a mortgagee under a power of sale subject to and what is it free of?

Answer 19

Subject to any prior mortgages, but free of any interest over which the mortgagee has priority

Question 20

What duty does the mortgagee owe the mortgagor in exercising their power of sale?

Answer 20

Duty to act in good faith and ensure it obtains true market value.

• ensure full information about the property is available to prospective buyers.
• need to sell property to an unconnected person.
• do not need to wait until market conditions improve

Question 21

What function does appointing a receiver serve, and where is this power generally exercised ?

Answer 21

More common in the commercial context.
- collection income and management of the property.
- income can then be used to pay off debt, with any surplus beind paid to mortgagor (cf. foreclosure)

Question 22

What are the five rights an equitable mortgagee has?

Answer 22

Same fives rights as legal mortgage, subject to some differences for sale and receiver

Question 23

Whilst an equitable mortgage will generally have the power of sale, what do they not have?

Answer 23

Power to convey or transfer the legal estate

Question 24

What is required for an equitable mortgagee to have the right to appoint a receiver, and what is required in the absence of this?

Answer 24

Equitable mortgage must have been created by deed, otherwise an application must be made to the court

Question 25

What two things will have priority over a properly registered legal mortgage in the registered system?

Answer 25

1. Charge registered before it, and
2. Overriding interest if it existed before it

Question 26

When an equitable mortgage in the registered system is protected by placing a notice or restriction on the property’s register of title, what will the equitable mortgage have priority over?

Answer 26

Any later dealing with the legal estate, even a later legal mortgage

Question 27

For all legal mortgages in the unregistered system other than the first protected by the title deeds, what is the main factor in determining priority?

Answer 27

The date of registration as a legal charge

Question 28

In the unregistered system, how should (1) a legal mortgage not protected by deposit of title deeds and (2) an equitable mortgage be protected?

Answer 28

Legal mortgage: Class C(i) puisne mortgage land charge

Equitable mortgage: Class C(iii) general equitable interest land charge

Question 29

What is postponement?

Answer 29

Process whereby lenders agree between themselves to vary the priority of their respective charges

Question 30

What limitations is a mortgagee subject to when exercising their right to repossession?

Answer 30

• Need to obtain a court order first.
• S.36 AJA
  1) Mortgagor shows they have a realisitc prospect of repaying the debts (court will then delay possession proceedings)
  2) Inherent jurdicition - although post-ponement in such cases will be extremely limited.
• Connected person via Family Law Act (i.e. spouse) should be made a party to the proceedings, giving them an opportunity to ask to postpone proceedings.

Question 31

What factors will the court consider when reviewing a s.36 AJA application to post-pone repossession?

Answer 31

1) How much mortgagor can afford to repay
2) Whether any temporary difficulties (ie. sick leave) affected its ability to make repayments;
3) Reasons for arrears
4) Contractual terms of mortgage

Question 32

What effect does the doctrine of clogs and fetters have in safeguarding mortgagor’s right to redemption?

Answer 32

protective mechanism against unfair conditions that seek to restrict or limit a borrower’s right to redeem mortgage.
- court will refuse to give effect to any such terms that render right to redemption ‘merely illusory’?
- whether term is ‘oppressive’ is assessed objectively.

Question 33

What are three instances where a term will be deemed unfairly fetter a mortgagor’s right to redem?

Answer 33

1) unfair condition that prevents full repayment of mortgage;
2) term that changes the nature of the mortgagee/mortgagor relationship

Question 34

When will a collateral advantage amount to a fetter on a mortgagor’s right to redemption?

Answer 34

Where collateral advantage lasts longer than duration of mortgage.

Question 35

When will a lender be bound by interests predating the registration of its charge?

Answer 35

1) another registered charged;
2) notice on register of rights
3) overriding interest

Question 36

How is the right to foreclosure obtained by the mortgagee?

Answer 36

lender must go to court to obtain interim order fixing date borrower should pay outstanding money.
* if borrower fails, then lender can seek final order to foreclose.

Question 37

What is a key limitation to a mortgagee’s right to foreclose?

Answer 37

LPA 1925, s.91(2)
Allows any person interested either in the mortgage money or in the right of redemption to request that court order for sale instead of foreclosure

Question 38

How are mortgagor’s protected under statute?

Answer 38

FSMA - mortgagee is obliged to act fairly/transparently
CRA - strike down “unfair” term

Question 39

What is tacking, and problems that may arise?

Answer 39

where further money is lent under an original mortgage agreement (aka re-mortgaging).

• subsequent re-mortgage will not have priority over any subsequent mortgages to which it has notice (even if OG mortgage was created first).