Chapter 9: Mortgages Flashcards
Who is the mortgagor?
The borrower
Who is the mortgagee?
The lender
How must a legal mortgage be made?
A legal mortgage must be made by deed
How can an equitable mortgage be created?
- Parties agree mortgage is to take effect in equity only
- An unsuccessful attempt is made to create a legal mortgage
- Borrower only holds equitable interest in property
A contract to create a legal mortgage gives rise to an equitable mortgage from what time?
Date of the contract
Does an equitable mortgage need to be by deed?
No, but it must be in writing and signed by mortgagor or their agent
How is a legal mortgage of registered land protected?
- A legal mortgage must be completed by registration
- Once registered, the mortgagee / lender has priority over competing interests (unless they are protected on the register as overriding interests)
How is an equitable mortgage of registered land protected?
Equitabe mortgages of registered land are protected by placing a notice on the property’s register of title
How is a legal mortgage of unregistered land protected?
- If land is unregistered, the first legal mortgage is protected by the deposit of title deeds
- A second legal mortgage is protected by registration of a C(i) land charge against the name of the mortgagor (borrower)
How is an equitable mortgage of unregistered land protected?
By registration of a class C (iii) land charge against the mortgagor’s name.
What is required if the equitable mortgage is over an equitable interest, e.g. a beneficiary’s interest under a trust?
Mortgagee should give notice to the trustees
There is usually an imbalance of bargaining power between mortgagor/borrower and the mortgagee/lender. How may the Courts respond to an imbalance of power?
The Court may intervene and strike down particular clauses in a mortgage to protect the borrower
What is the right to redeem the property?
The right to pay off the loan in full and regain rights over the property from the mortgagee / lender
What is the redemption date?
- The earliest date upon which the loan can be repaid in full and the property redeemed
- Usually six months after the start of mortgage
What will happen if a term postponing the right to redeem is illusory?
A term postponing the right to redeem will be void if it renders the right to redeem illusory
What is the repayment period?
The longest time that can be taken to pay off the mortgage in full
Can a mortgage clause purport to give the mortgagee/lender the right to purchase the mortgage estate?
No, a clause purporting to give the mortgagee/lender the right to purchase the mortgaged estate will be void
Such a clause would conflict with the borrower’s right to redeem
What is a collateral advantage in a mortgage agreement?
- An additional advantage aside from the repayment of the loan
- E.g. the borrower agreeing to sell only the lender’s petrol
Are collateral advantages void?
- A collateral advantage is not void in itself provided that they do not fetter the borrower’s right to redeem the property
- Collateral advantages are usually void if they extend beyond the date of redemption
What is an unconscionable term in a mortgage?
- A term which is morally reprehensible or improper and unreasonable in light of all the circumstances
- The Court will void an unconscionable mortgage term
Which third-party interests will a mortgage be subject to?
- Legal tenancy of unregistered land granted before the mortgage was created
- A legal tenancy of registered land not exceeding seven years
- Equitable tenancy of unregistered land which has been protected as an estate contract by registration of a C(iv) land charge
- The interest of an occupier who doesn’t own the property, but has contributed to the purchase price
- An equitable tenancy of registered land that does not exceed seven years and the tenant is in occupation
What is required where an institution is lending money secured by co-owned property, but the proceeds are to be used by only one of the co-owners for a separate purpose?
Other co-owner must be:
- Separately represented by another solicitor, and
- Given full financial information
Which 5 remedies are available for a mortgagee / lender when a borrower defaults on their legal mortgage?
- Sue for debt
- Take possession
- Foreclose
- Sell
- Appoint a receiver
Whilst a mortgagee/lender can usually always take possession, the presence of what on the land adds an additional requirement, and what is this step?
If there is a dwelling on the land, possession can only be sought through the Courts
What is foreclosure?
- Extinguishes the right to redeem
- Mortgagee (lender) becomes owner of property
- Requires a Court order in order to transfer the legal estate from the borrower to the lender
Only when will the right to foreclose arise?
Contractual date set to redeem the mortgage has passed (usually six months after creation)
Does the mortgagee have a right to sell a mortgaged property if the mortgagor has defaulted on their legal mortgage?
Yes, the mortgagee has a right to sell the mortgaged property without the need to apply to a court provided that the contractual date set to redeem the mortgage has passed (usually six months after the mortgage was created)
When will the power of sale become exercisable?
If one or more of the following are satisfied:
- Interest payments are more than two months in arrears
- There has been a written request for repayment of the capital and three months have passed without payment
- There is a breach of another term of the mortgage
If one or more of the conditions met, the right to sell automatically arises
What is the right to appoint a receiver as agent of mortgagor?
- The receiver acts as agent for mortgagor
- Agent can manage or sell property
- More often used in commercial mortgages
Which 5 remedies are available for a mortgagee / lender when a borrower defaults on their legal mortgage?
- Sue for debt
- Take possession
- Foreclose
- Sell (but no power to convey or transfer the legal estate)
- Appoint a receiver (only arises if mortgage made by deed, otherwise application must be made to Court)
What two things will have priority over a properly registered legal mortgage in the registered system?
- Charge registered before it, and
- Overriding interest if it existed before it
If there is an equitable mortgage of registered legal estate and it has been protected by placing a notice or restriction on the property’s register of title, what will the equitable mortgage have priority over?
The equitable mortgage will have priority over any later dealings of the legal estate (even later legal mortgages)
In the unregistered system, which legal mortgage will have priority?
Whichever one is protected by deposit of the title deeds with the lender
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?
The date of registration as a legal charge
In the unregistered system, how should (1) a legal mortgage not protected by deposit of title deeds and (2) an equitable mortgage be protected?
Legal mortgage: Class C(i) puisne mortgage land charge
Equitable mortgage: Class C(iii) general equitable interest land charge
What is postponement?
Process whereby lenders agree between themselves to vary the priority of their respective charges
If a borrower defaults on their mortgage and the mortgage does not contain an express mention of the lender’s right to take possession of the property, is repossession possible?
Yes, a lender is entitled to possession of the property from the date that the mortgage is executed even if the mortgage agreement does not expressly mention this right
