Land 10

Question 1

Who is the mortgagor and who is the mortgagee?

Answer 1

Mortgagor: borrowerMortgagee: lender

Question 2

What formality must be met in order to make a legal mortgage?

Answer 2

It must be by deed

Question 3

What are the two ways a legal mortgage may be created?

Answer 3

1. Demise (only for unregistered land)2. Legal chargeNote both must be made by deed

Question 4

What is a legal mortgage created by demise?

Answer 4

A mortgage that is made in the form of a long lease of the mortgagor’s land to the mortgagee with the provision that the lease will come to an end when the mortgage is redeemed and all capital and interest is repaid (known as the ‘cesser on redemption’). This is very rare in practice, as it can only be used for unregistered land.

Question 5

What are the two ways a mortgagor can create a legal charge?

Answer 5

1. Executing a deed declaring the mortgagor is charging the land for sums to be repaid (most common)2. Charging a registered estate by deed with payment of money (no need for express declaration)

Question 6

What are the three situations in which an equitable mortgage can be created?

Answer 6

Parties agree that mortgage should only be equitable (usually for short term loans)* Parties will state it is to take effect in equity only * In writing * Signed by mortgagor or his agentContract in writing to create a legal mortgage (most common)* Gives rise to equitable mortgage from date of contract* Some defect caused the legal mortgage to fail so it takes effect in equityMortgagor owns equitable interest only* Can’t create a legal mortgage if not holding the legal interest* Equitable interest is conveyed on agreement that when repaid, it will be conveyed back* In writing * Signed by mortgagor or his agent

Question 7

A contract to create a legal mortgage gives rise to an equitable mortgage from what time?

Answer 7

Date of the contract

Question 8

What is the effect of an unsuccessful attempt to create a legal mortgage?

Answer 8

It takes effect in equity

Question 9

Does an equitable mortgage need to be by deed?

Answer 9

No, but it must be in writing and signed by mortgagor or their agent

Question 10

How can a charge arise under statute?

Answer 10

• A court may enter a “charging order” in favor of a judgment creditor over a debtor’s property in the amount of the judgment owed. * A person granted state funding for legal services has a certain level of financial means, any property they receive as a result of their proceedings may be charged by the Legal Aid Agency and applied in payment of their solicitor’s fees This allows legally aided persons to contribute to their cases as far as they are able and helps the Legal Aid Agency recoup its costs in providing assistance.

Question 11

On what do the methods available to protect a mortgage depend?

Answer 11

Whether the legal estate is registered or not.

Question 12

In the registered system, what are the two factors to be considered in determining how a mortgage should be protected?

Answer 12

Whether mortgage:1. Is legal or equitable, and2. Was created before or after the Land Registration Act 2002

Question 13

How is a legal mortgage over registered land protected?

Answer 13

It must be registered as a notice on the charges register if the mortgagee wants to exercise power of sale.Once registered, it has priority over competing interests, unless those are registered or overriding.

Question 14

How is an equitable mortgage over registered land protected?

Answer 14

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

Question 15

In the unregistered system, how are mortgages protected?

Answer 15

First mortgage* Takes priority over any other borrowing secured on the property* Protected as they will have custody of the title deeds. * Any legal mortgage which is not protected by the deposit of the title deeds must be protected by the registration of a puisne mortgage (a class C(i) land charge). Equitable Mortgage* If the mortgage is an equitable mortgage of the legal estate not protected by deposit of the title deeds (whether a first or subsequent mortgage), it should be protected by registration as a class C(iii) land charge * If the mortgage is an equitable mortgage of an equitable interest (e.g. a beneficiary’s interest under a trust of land), the mortgagee should give notice to the trustees.

Question 16

In the context of mortgages, who has priority in the unregistered system, and why?

Answer 16

The first mortgagee, because they will have custody of the title deeds

Question 17

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

Answer 17

Register a class C(i) puisne mortgage land charge

Question 18

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

Answer 18

Register a class C(iii) general equitable land charge

Question 19

What is required if the equitable mortgage is over an equitable interest, e.g. a beneficiary’s interest under a trust?

Answer 19

Mortgagee should give notice to the trustees

Question 20

What rules apply to mortgages created by companies?

Answer 20

• They must be registered at Companies House within 21 days* This applies whether the land is registered or unregistered* A charge not registered in this way will not bind the liquidator or creditors if the company subsequently goes into liquidation. * Evidence that the charge has been registered at the Companies Registry must accompany the application to register the charge at HMLR.

Question 21

What are the two main situations in which a third party may have an interest in land subject to mortgage that is to be sold?

Answer 21

1. Tenants2. Co-owners

Question 22

When considering a tenancy in mortgaged land subject to sale, what is the key point?

Answer 22

Whether the tenancy was granted before or after the mortgage was created.

Question 23

Does a legal tenancy of unregistered land granted before the mortgage was created bind the mortgagee?

Answer 23

Yes

Question 24

Does a legal tenancy of registered land granted before the mortgage was created bind the mortgagee?

Answer 24

Yes, as long as it does not exceed seven years (overriding interest)

Question 25

What is required for a legal tenancy of greater than seven years granted before the mortgage was created to be binding on a mortgagee?

Answer 25

It must be registered with its own independent title. If this is not done, the lease will not be treated as an overriding interest unless and until the tenant goes into occupation

Question 26

What is required of an equitable tenancy of unregistered land granted before the mortgage was created to be binding, and what is the consequence of not doing this?

Answer 26

An equitable tenancy of unregistered land must be registered as a class C(iv) estate contract land charge.Failure to do so will render the tenancy void against a bona fide purchaser for value without notice (this definition includes a mortgagee)Note: if the tenant goes into possession and pays rent, the court would infer a periodic tenancy which would bind the mortgagee.

Question 27

Does a equitable tenancy of registered land not exceeding seven years granted before the mortgage was created override the mortgage?

Answer 27

No, it is not an overriding interest. Once the tenant goes into occupation, his interest would then override that of the mortgagee.

Question 28

Where the mortgage deed prohibits creation of tenancies without mortgagee’s consent, is the mortgagee bound by unauthorised tenancies?

Answer 28

No

Question 29

How will a person in occupation with a property interest defeat the mortgagee’s ability to repossess?

Answer 29

Court may be willing to allow the occupier to stay in occupation

Question 30

A non-owning wife was occupying the property and she had contributed to the purchase price. The mortgage advance was paid to only one trustee (the legal owner) and the title to the property was registered. Did the lender take the interest free of third party interests?

Answer 30

No, her rights were not overreached so the lender took subject to them. The title to the land was registered, and the wife’s actual occupation plus her rights gave her an overriding interest.| William and Glyn’s Bank v. Boland HL [1981] AC 487

Question 31

A property had two registered proprietors. The parents of one of the co-owners contributed toward the purchase of the property and lived there. The parents tried to claim they had an overriding interest when faced with possession proceedings by the bank. The mortgage advance had been paid to two registered proprietors. Did the bank take the interest free of third party interests?

Answer 31

No, payment was made to two trustees, so the interest of the behind-the-scenes beneficiaries had been overreached.| In City of London Building Society v Flegg [1987] UKHL 6

Question 32

What is required where an institution is taking money over co-owned property, but the proceeds are to be used by only of the co-owners for a separate purpose?

Answer 32

Other co-owner must be:1. Separately represented by another solicitor (who will issue a certificate of confirmation), and2. Given full financial informationThe creditor must take reasonable steps to satisfy itself that the practical implications of the proposed transaction have been understood by the other co-owner in a meaningful way.

Question 33

In this situation, what must the institution ensure the other co-owner understands?

Answer 33

The practical implications of the proposed transaction in a meaningful way

Question 34

Where a lending institution has complied with all requirements in lending money to co-owners for a purpose other than the acquisition of the property, is there any recourse available to the other co-owner?

Answer 34

Not from the lender but if the solicitor failed to carry out instructions property, they may be able to sue for breach of duty.

Question 35

On what do the remedies available to a mortgagee depend?

Answer 35

Whether the mortgage is legal or equitable

Question 36

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

Answer 36

1. Sue for the debt2. Take possession3. Foreclose4. Sell5. Right to appoint receiver

Question 37

When can a mortgagee sue for the debt owed by the mortgagor?

Answer 37

Any time after the date fixed for repaymentNote: if the mortgage is in arrears, this is usually because the mortgagor does not have the money to pay the debt. If this is the case, the right to sue for the debt is of little practical use.

Question 38

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

Answer 38

If there is a dwelling on the land, possession can only be sought through the courtsA mortgagee in possession has various managerial powers, but must exercise them to a high standard, and if they fail to do so, they are liable to account for any loss.

Question 39

What is the effect of foreclosure and when does the right to it arise?

Answer 39

The right to redeem is extinguished and the mortgagee becomes the owner of the property.* Right does not arise until after the contractual due date for repayment has passed.* It takes place by court order that transfers the legal estate from the borrower to the lender. * For registered land, the mortgagee becomes registered as the registered proprietor, and entries relating to the charge are removed from the register. * It is rarely used, as it lacks the finality of a sale.

Question 40

What are the three requirements, one of which is enough, for the power of sale to become exercisable?

Answer 40

1. Interest payments more than two months in arrears2. Written request for payment of capital and three months has passed3. Breach of any other term of the mortgage e.g. failure to insure

Question 41

What are the two requirements which must be met before a legal mortgagee can sell the property without applying to court?

Answer 41

Provided the power of sale has become exercisable:1. Mortgage was created by deed2. Contractual date set to redeem the mortgage has passed (usually six months after creation)Usually the mortgagor will obtain possession before selling to ensure they can sell with vacant possession

Question 42

What is sale by a mortgagee under a power of sale subject to and not subject to?

Answer 42

Subject to any prior mortgages, but free of any interest over which the mortgagee has priorityNote: the proceeds of sale are held by the selling mortgagee on trust and the money must be used in strict order.

Question 43

What does a receiver do if the right to appoint a receiver is exercised by the mortgagee of a legal mortgage as a remedy?

Answer 43

A receiver is appointed and acts as the agent of the mortgagor. As such the receiver can manage or sell the mortgaged property (usually commercial rather than residential).

Question 44

What are the five rights an equitable mortgagee has?

Answer 44

1. Sue for the debt2. Take possession3. Foreclose4. Sell (note, no statutory power to convey or transfer the legal estate)5. Right to appoint receiver (only if made by deed, otherwise need application to the court)

Question 45

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

Answer 45

Power to convey or transfer the legal estate

Question 46

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 46

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

Question 47

What 4 factors are relevant to the order of priorty of second and subsequent mortgages?

Answer 47

• What interests are mortgaged–that is, whether the mortgage is of the legal estate or an equitable interest* If it is a mortgage of a legal estate, whether the title to the land is registered or unregistered* Whether the mortgage itself is legal or equitable and * Where the mortgage depends for its protection on some type of registration, whether it has been protected.

Question 48

Does it matter from a buyer’s perspective whether all mortgages on a property have been paid off?

Answer 48

No, the buyer will take a clear title free of any second mortgage. This is because a sale by a lender is subject to any prior mortgages, but free of any interests over which the mortgage has priority.

Question 49

If a second or subsequent lender decides to repossess and sell a property, what are they obliged to do?

Answer 49

Use the proceeds of sale to pay off the earlier mortgage first. The first mortgage has priority so the second or subsequent lender will only be able to take any of the sale proceeds to discharge their debt once the first charge is fully paid off.

Question 50

Unless there is anything on the register to the contrary, what will a legal mortgage have priority over when it is entered on the register of title?

Answer 50

Any interest whose priority is not protected and all later mortgages. Note, it will not have priority over an overriding interest that existed before registration of the mortgage.

Question 51

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

Answer 51

1. Mortgages registered before it, and2. Overriding interest if it existed before it

Question 52

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 52

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

Question 53

In the unregistered system, which legal mortgage will have priority?

Answer 53

Whichever one is protected by deposits of the title deeds with the lender

Question 54

For all mortgages in the unregistered system which are not protected by deposit of title deeds, what is the main factor in determining priority?

Answer 54

The date of registration as a legal charge

Question 55

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 55

Legal mortgage: Class C(i) puisne mortgage land chargeEquitable mortgage: Class C(iii) general equitable interest land charge

Question 56

What are the priority rules for equitable interests in both registered and unregistered?

Answer 56

Generally, first in time has priority

Question 57

What is postponement?

Answer 57

Process whereby two or more lenders agree between themselves to vary the priority of their respective chargesThe charge which loses priority is said to be ‘postponed’ to the earlier charge. As the priority of registered charges depends on the order in which the mortgages appear in the Charges Register, any postponement made by deed must be reflected by a register entry.

Question 58

What is the effect of further advances being secured by the original mortgage?

Answer 58

This will have the effect of ‘using up’ the equity in the property which may be to the detriment of subsequent lenders which registered charges. Second and subsequent mortgagees of unregistered land need, therefore, to protect their interests by registering a C(i) land charge. Failure to do so will render the mortgage void against a purchaser for money or money’s worth.