Legal Mortgages: Creation Flashcards
What distinguishes unsecured loans from secured loans?
Unsecured loans are provided without any security, meaning the lender’s recourse if the borrower fails to repay is limited to legal action for the debt, with a risk of not recovering the funds if the borrower is insolvent.
Secured loans, on the other hand, involve some form of collateral or security, reducing the lender’s risk by providing a means to recover the loan amount if the borrower defaults.
What are the types of security in secured loans, and how do they operate?
Secured loans can be protected by personal or real security.
Personal security involves a third party’s promise to repay the loan if the borrower defaults, but it carries the risk of the guarantor’s insolvency.
Real security ties the loan repayment to a specific property item, such as land, allowing the lender to sell the item to recover the debt. The borrower who provides property as collateral is termed the mortgagor, while the lender holding the security is the mortgagee.
What qualifies a mortgage as a legal interest in land under the Law of Property Act 1925?
A mortgage is recognized as one of the five interests capable of existing as a legal interest in land according to s 1(2) of the Law of Property Act 1925. If created properly, following the prescribed formalities, a mortgage is considered a legal mortgage.
What happens if the formalities for creating a legal mortgage are not complied with?
If the required formalities for creating a legal mortgage are not met, the mortgage may instead take effect as an equitable mortgage.
This distinction primarily hinges on the failure to adhere to the specific formal requirements for a legal mortgage.
How is a legal mortgage created according to the Law of Property Act 1925 and which is most common today?
A legal mortgage must be created by a deed as per s 52(1) LPA 1925.
The Law of Property Act outlines two methods for creating a legal mortgage:
1. a demise (lease) for a term of years absolute with a provision for lease end upon mortgage redemption, and
2. a charge by deed expressed to be by way of legal mortgage.
Today, the most popular and, since the Land Registration Act 2002, the only method for creating mortgages on registered land is by way of a legal charge.
How can a mortgage be created over a leasehold estate according to the Law of Property Act 1925?
A mortgage over a leasehold estate can be created by the creation of a charge or by granting a sub-lease for a term one day shorter than the lease being mortgaged, as per s 86(1) LPA 1925.
However, since October 13, 2003, the creation of a charge has been the only method allowed for creating a mortgage on registered leasehold estates.
What right does s 85(1) of the Law of Property Act 1925 grant to lenders regarding title deeds in unregistered land mortgages?
Under s 85(1) of the Law of Property Act 1925, lenders are granted the right to take custody of the title deeds when a first legal mortgage is created over an unregistered title.
How does creating a first legal mortgage on land affect the registration status of unregistered land post-March 1998?
Creating a first legal mortgage on land after March 1998 triggers compulsory first registration of the land’s title, as part of the efforts to modernize and consolidate land ownership records.
What are the registration requirements for a mortgage over a registered title according to the Land Registration Act 2002?
For mortgages over registered titles, the mortgage must be registered with the Land Registry as a registrable disposition under s 27 of the Land Registration Act 2002.
The mortgage becomes legal when entered in the charges register of the affected title.
How were mortgages treated under the Land Registration Act before 2002, and what has changed?
Before the Land Registration Act 2002, mortgages were treated in a similar manner, requiring registration to achieve legal status.
Post-2002, this process was maintained, ensuring all mortgages created are reflected in the Land Registry for transparency and legal clarity.
