Land VIII Mortgages

Question 1

Explain ways of creating a legal mortgage

Answer 1

1) a mortgage may be made by demise

A legal mortgage may be made by demise. Such a mortgage is made in the form of a long lease of the mortgagor’s land. the lease will come to an end when the mortgage is redeemed and all capital and interest is repaid. This is very rare since it only applies to unregistered land.

2) By legal charge
The interest must be capable of being legal (s.1(2) LPA)

must be created by deed (s.52(1) LPA) that is signed, witnessed and delivered as a deed. (s.1 LP(MP)A);

must be entered in the charges register of the title as a registrable disposition s.27 LRA)

Question 2

Explain types of equitable mortgages

Answer 2

The charge must be in writing and signed by the mortgagor or his agent.

1) any contract to create a legal mortgage will be regarded as an equitable mortgage. Such a contract can arise because the parties have tried to enter into a legal mortgage but it is defective in some way
2) when the mortgagor holds only an equitable interest, an equitable mortgage is all that can be created. it needs not be by deed but it must be in writing and signed by the mortgagor or his agent.

All types of equitable mortgage are rare in practice.

Question 3

Mortgage charges made under statute

Answer 3

A charge may arise under statute, for example, a charging order being made by court.

for example, if a claimant relies on state funding to recover or preserve property, they must pay a contribution to the Legal Aid Agency,

Question 4

Priority of mortgage over other non-mortgage competing interests

Answer 4

Once a mortgage charge is registered, it has priority over competing interests unless they are protected on the register or are overriding interests.

Question 5

Explain protection of equitable mortgage

Answer 5

Before LRA 2002, an equitable mortgage should have been protected by notice or caution

After LRA 2002, an equitable mortgage is not a disposition to be completed by registration. the equitable mortgage should be protected by notice or restriction

Question 6

What is a first mortgage?

Answer 6

A first mortgage takes priority over any other borrowing secured on the property; if the property is sold, the first mortgage will be paid off first

Question 7

How is a mortgage on a property without the title deeds protected?

Answer 7

it must be protected by the registration of a puisne mortgage (a C(i) land charge)

Question 8

How is an equitable mortgage of the legal estate protected?

How is an equitable mortgage on an equitable interest protected?

Answer 8

If the mortgage in an equitable mortgage of the legal estate not protected by deposit by deposit of the title deeds, it should be protected by registration as a class C(iii) land charge

if the mortgage is an equitable mortgage of an equitable interest (a beneficiary’s interest under a trust of land) the mortgagee should give notice to trustees

Question 9

Registration rule for mortgages by companies

Answer 9

it must be registered within 21 days of the creation of the charge. a charge not registered in this way will not bind the liquidator or creditor.

Question 10

Two kinds of third party’s with an interest in land

Answer 10

Tenancy and co-ownership

Question 11

How may a legal tenancy be protected under a mortgage?

in an unregistered land
in a registered land

Answer 11

A legal tenancy of unregistered land will bind the mortgagee

If the land is registered and the tenancy is > 7 years, it must be registered. if not it will only be an overriding interest unless and until the tenant goes into occupation

if the land is registered and the tenancy is < 7 years, the mortgagee will be bound

Question 12

How may an equitable tenancy be protected under a mortgage?

Answer 12

An equitable tenancy of unregistered land must be protected as an estate contract by the restoration or class C(iv) estate contract. Failing that, the interest will be void against a purchaser.

if a tenant has already gone into possession, a periodic tenancy (legal)will be inferred.

Question 13

To protect untended/unexpected tenancy, what does the mortgagor always do?

Answer 13

the mortgage deed usually prohibits the creation of tenancies without the lender’s consent. an unauthorised tenancy cannot be binding.

Question 14

Explain the significance of

William and Glyn’s Bank v Boland 1981

Answer 14

If the property is owned in the name of one party but there is someone else living at the property and who has an interest in the property. A court may be willing to allow the non-owning occupier to stay in occupation of the property, thus defeating the mortgagee’s ability to repossess.

Question 15

City of London Building society v Flegg

A property faces possession proceedings by the bank. The parents of one of the co-owners contributed towards the purchase and lived there.
They want to argue against the repossession by claiming that they have an overriding interest.

Answer 15

The parent’s rights are overreached because the payment was made to two registered proprietors. The payment was made to two trustees, so the interest of the behind-the-scenes beneficiaries had been overreached,

Question 16

Mortgagee’s remedies to enforce their security on a legal mortgage

(4)

Answer 16

1) Sue for the debt - not very useful since most mortgagors default because of a lack of money
2) Mortgagee can take possession. but it the mortgaged land included a dwelling, possession can be sought only through the courts.

3) Foreclosure
Foreclosure is the process by which the right to redeem is extinguished and the mortgagee becomes the owner of the property. Foreclosure must take place by a court order that transfers the legal estate. Foreclosure is rare since the sale is preferred.

4) Sell
A legal mortgagee has the power to sell the mortgaged property without the need to apply to court, provided the mortgage was created by deed and the contractual date set to redeem the mortgage has passed, usually six months after the creation of the mortgage

Question 17

Who is a mortgagor and who is a mortgagee

Answer 17

the borrower is the mortgagor and the lender is the mortgagee.

Question 18

The option to sell is only exercisable if one or more of which criteria are satisfied?

Answer 18

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; and

There is a breach of some other term of the mortgage

Question 19

Effect of sale when the mortgagee exercises the option to sell following a default event or a breach

Answer 19

A sale by a mortgagee under a power of sale is subject to any prior mortgages but will be free of any estates or interests over which the mortgagee itself has priority, The proceeds of sale are held by the selling mortgagee on trust, and the money must be used in strict order.

Question 20

Factors affecting the priority of mortgage?

Answer 20

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 of the land is registered or unregistered

whether the mortgage itself is legal or equitable

Where the mortgage depends for its protection on some type of registration, whether it has been protected

Question 21

Priority between competing mortgages and overriding interests

Answer 21

Overriding interests that existed before the entry of legal mortgage
Legal mortgage that entered earlier > Legal mortgage that entered later

Question 22

Priority between equitable mortgage and legal dealings and mortgages

Answer 22

it depends on whether it has been protected by notice on the register. if this has been done, the equitable mortgage will have priority over other rights arising from the estate and even legal mortgage.

Question 23

For unregistered land, what kind of mortgage will take priority?

Answer 23

the legal mortgagee with the title deeds will have top priority.

The next priority will be accorded a puisne mortgage - a class C(i) land charge and an equitable mortgage of a legal estate should be registered as class C(iiI) land charge.

The date is according to their date of registration.

Question 24

For competing equitable mortgage, which will take priority?

Answer 24

The rules for priority of an equitable interest against another equitable interest are the same whether the title affected is registered or unregistered. Generally, the rule is that first in time takes priority

Question 25

Meaning of postponement in mortgage

Answer 25

Two or more lenders may agree between themselves to vary the priority of the respective charges. The charge which loses priority is said to be postponed to the earlier charge. Postponement made by deed must be reflected by a register entry.

Question 26

Discuss possession as remedies for default of a mortgage

Answer 26

The mortgagee can either take possession in order to sell or intercept the income

The mortgagee must manage the property with due diligence. otherwise, they must account to the mortgagor for the income he did and would have received (White v City of London Brewery)

as soon as formalities is complete, the lender can take possession at any time (Four Maids Ltd v Dudley Marshall (Properties) Ltd

Question 27

Discuss the prohibited and permitted means of taking possession

Answer 27

There must not be violence or threat of violence (CLA 1977)

if proceedings have been taken, mortgagor can appeal to s.36 Administration of Justice Act 1970 as long as he can prove he is able to repay in a reasonable time.

However, since mortgagee does not need a court order to exercise his right to possession (Ropaigealach v Barclays), AJA 1970 is rarely invoked by bypassed

Art 8 HRA 1998 (private and family life) is irrelevant if mortgage payment has stopped

Question 28

Discuss the means to intercept income without taking over the property

Answer 28

Appointment of a receiver: only if

• mortgage is created by deed since s.101 LPA imposes an implied term of appointment of a receiver in a deed
• power has arisen legal date of redemption must have passed (s.101)
• the appointment has become exercisable under s. 103

Appointment must be in writing s.109 LPA

Question 29

Meaning of right to appoint a receiver and to sale has become exercisable

Answer 29

if one or more of the following conditions is met:

(i) the lenders have served notice on the borrowers requiring repayment of the loan, borrowers have failed to comply for three months;
(ii) interest due under the mortgage is 2 months in arrears; or
(iii) the borrowers have breached a term under the mortgage deed

Question 30

Once the receiver is appointed, they must apply the income:

Answer 30

• outgoings on the property;
• interest on any prior mortgages
• insurance premiums on the property and his own costs;
• interest on the current mortgage;
• capital on the current mortgage; and
• the balance to the mortgagor

Question 31

Discuss the means to sell the property when the power of sale arises

Answer 31

Power of sale arises when:

• mortgage is created by deed since s.101 LPA imposes an implied term of appointment of a receiver in a deed
• power has arisen legal date of redemption must have passed (s.101)
• the appointment has become exercisable under s. 103

Lenders must act in good faith and take reasonable care to obtain true market value (Cuckmere Brick Co Ltd Mutual Finance Ltd)

Question 32

Under s.104(1) LPA, the buyer will take the whole estate when power of sale arises. is he bound by any third party interests?

Answer 32

The title will be free from interests that selling mortgagee had priority over; but subject to any interests that took priority over the selling mortgagee

Question 33

Meaning of foreclosure and why is it rarely used in practice?

Answer 33

The effect of foreclosure is to vest absolute ownership (the borrower retains no equitable interest) of the borrower’s property in the lenders.

right to foreclosure arises when a date of redemption pasess or mortgagor breaches a term of mortgage

But under s.91 (2) LPA any person interested either in the mortgage or in the right of redemption can request the court to make an order for sale

Question 34

Why there is little practical value for the lender to sue for the debt?

if the lenders choose to do so, what is the situation where the action becomes available..

Answer 34

Mortgagor defaults mostly because inability to meet payment obligations. Suing an insolvent individual yields little.

Such action is only available after the date of redemption has passed.

Barred under the limitation act to 12 years from th date the payment became due

Question 35

Review protection of legal mortgage in the registered and unregistered system

Answer 35

Reg: as registrable disposition must be registered on the charges register against the TITLE. if not it will not be binding.

Unreg: first mortgage can take possession of title deeds (s.85(1) LPA)

subsequent mortgage must be registered as a c(I) puisne mortgage land charge against the mortgagor’s NAME.

not registered, not binding

Question 36

Rules on priority for mortgage interest

Answer 36

s.104(1) LPA 1925
mortgagee is freed from all proprietary interests made after the mortgage but held subject to those interests made correctly before

when examining whether prior interests are binding, treat the mortgagee as buyer.

OI usually fail to bind mortgagee because these interests are established subsequent to completion of sale.

Question 37

when would the power of sale arise

Answer 37

A legal mortgagee has the power to sell the mortgaged property without the need to apply to a court, provided the mortgage was created by deed and the contractual date set to redeem has passed. this is usually SIX months after the creation of the mortgage.

The power of sale become exercisable if one or more of the following is satisfied:

Interest payments are more than 2 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 some other term of the mortgage (fail to keep the property insured)