Land - Mortgages (7) Flashcards
What are mortgages?
Mortgages: Mortgages are loans used predominantly to purchase property. They are typically secured against the property.
(1) Registered Land: They are typically fixed charges over the land (s27 LRA).
(2) Unregistered Land: First lenders are permitted to retain the title deeds of unregistered land, but new mortgages will trigger registration (s85 LPA).
How are legal mortgages created by deed?
Creation and Registration: Legal mortgages must be created by deed, and in respect of registered title, must be recorded in the charges register to be legal.
(1) Deed: Clear, signed, witnessed and dated (s1 LP(MP)A).
(2) Charge: Must be recorded on the charges register to be legal.
What is the order of priority for mortgages?
Order of Priority: There may be multiple mortgages over the property. It is important to determine which takes priority, which is important when the property is sold.
(1) Priority: The mortgage appearing earliest on the register is first in priority, irrespective of whether it is legal or equitable (s48).
(2) Effect: If the property is sold, the mortgages must be paid off in order of priority. Ergo, if a lender takes possession of the property and sells it on default, it must pay off a higher mortgage before itself.
What are the remedies for breach of the terms of mortgage?
Remedies for Breach: Lenders can pursue a number of remedies for breach of the terms of a mortgage. The most common reason is where the borrower defaults on mortgage payments.
Debt Action
Debt Action: Lenders can pursue debt actions for late payments, usually for minor arrears. This is usually impractical, as a borrower in default is unlikely to have money to compensate a debt.
(1) Requirement: The legal date of redemption must have passed (as set out in the mortgage deed), and the borrower must be in arrears (s101 LPA).
(2) Limitation Period: Defaults on capital must be claimed within 12 years, and interest within 6 years.
Possession
Possession: Lenders can take possession of the land, and redirect incomes or may have the power of sale.
(1) Requirement: The right to possession is a default right of lenders, but the deed will usually alter this to be exercised only on default or other breach (Four Maids v Dudley Marshall).
(2) Means of Repossession: Depending on the type of property, lenders can seek a court order or exercise peaceable re-entry.
Court Order: Courts will evict the borrower, unless they believe the borrower will pay the sums owed or remedy the breach within a reasonable time (s36 AJA).
Peaceable Re-Entry: Lenders can peaceably re-enter without court order, but this is usually only available for commercial properties - it is a criminal offence to evict from a dwelling by force or threat (s6 CLA 1977).
(3) Effect: The lender can redirect rents (if there are tenants), or may have the power of sale (below).
Redirection: Tenant rents are redirected. This is capped at the debt owed, and must be at best rent, meaning low rents cannot be offered merely to satisfy the debt (White v City). The lender must also treat the property with diligence and care.
Power of Sale: The lender may alternatively exercise the power of sale (below).
(4) Receiver: Alternatively, the lender may appoint a receiver in writing to possess the property and redirect rents on their behalf, to avoid personal liability.
Power of Sale
Power of Sale: Lenders with legal mortgages can exercise the power of sale. This does not require vacant possession, but is usually preferred.
(1) Power: The power of sale is implied into the deed unless expressly excluded (s101). It cannot be exercised until the legal date of redemption as set out in the deed has arisen, and one of three grounds is met (s103):
Notice: Following a specified breach, notice is served on the borrower, who does not comply in 3 months.
Interest: The borrower is at least 2 months in interest arrears.
Term: A term of the deed specifies that power of sale will arise upon the specified breach without notice.
(2) Effect: The lender can sell the property, repaying surplus to the borrower after all debts are paid. They must act in good faith to sell the property.
Good Faith: This means ascertaining true market value, and selling at true market as close to true market value as reasonable in the circumstances of the current climate (Cuckmere v Mutual Finance).
(3) Distribution of Proceeds: Proceeds of sale must be distributed in a statutory order (s105).
Priority Mortgages: Mortgages with priority over the lender must be paid off first.
Expenses: Expenses of the sale must be paid off second.
Current Mortgage: The lender then pays off their own mortgage.
Lower Mortgages: The lender then pays off lower ranking mortgages.
Surplus: Any surplus is repaid to the borrower.
Shortfall: Any shortfall is sought through an unsecured debt action.
