mortgages

Question 1

what is a mortgage?

Answer 1

a form or proprietary security interest for the advancement of loans

Question 2

how do they work?

Answer 2

the bank lends an individual money to buy a house and in return the bank is granted a mortgage - an interest in the borrower’s land

Question 3

what happens if the borrower fails to make repayments?

Answer 3

the bank can take steps to recover its money including seeking possession of the property and selling it

Question 4

who is the mortgagor?

Answer 4

the landowner, person borrowing money and granting the mortgage

Question 5

who is the mortgagee?

Answer 5

the person or financial institution lending the money and to whom the mortgage is granted

Question 6

when can a legal mortgage be created?

Answer 6

only over land which is a legal freehold or a legal leasehold

Question 7

what happens when the interest to be mortgaged is equitable?

Answer 7

only an equitable mortgage can be created

Question 8

what does s23(1) LRA 2002 set out about legal mortgages in registered land?

Answer 8

the only method of creation of a legal mortgage in registered land is the registered charge
must be created by deed and registered to operate at law

Question 9

in what circumstances do equitable mortgages arise?

Answer 9

• mortgages of equitable interests
• informal or otherwise defective legal mortgages
• mortgages where there is forgery
• mortgages by deposit of title deeds
• mortgages arising under the doctrine of proprietary estoppel

Question 10

what are the mortgagor’s rights?

Answer 10

• mortgagor gets their property back after paying the loan back
• equitable right to redeem only arises when contractual right to redeem has passed
• equity is insistent that there will be no ‘clogs and fetters’ on the mortgagor’s right to redeem

Question 11

how is ‘no clogs and fetters’ on mortgagor’s right to redeem operated?

Answer 11

• any term in the mortgage which purports to exclude or restrict mortgagor’s right to redeem will be void
• any term in the mortgage which restricts or restrains the mortgagor’s right to trade will be void
• any term providing for the transfer to the mortgagee of the mortgaged property may be void
• any term in the mortgage conferring collateral advantages on the mortgagee above and beyond repayment of the loan will be void
• any term in the mortgage which is deemed to be oppressive or otherwise unconscionable will be struck out

Question 12

what protections do mortgagors have?

Answer 12

protection from unfair creditor
protection under Financial Services and Markets Act 2000

Question 13

what powers does the mortgagor have?

Answer 13

power to claim possession, grant leases and to seek an order for sale, set aside a mortgage on the grounds of undue influence

Question 14

what are the rights and remedies available to a legal mortgagee in the event that the mortgagor defaults on repayment of the mortgage?

Answer 14

• the right to payment under the contract
• the right to possession
• the power of sale
• the remedy of foreclosure
• the power to appoint a receiver

Question 15

when does a power of sale arise?

Answer 15

mortgage was made be deed, deed contained no provision excluding a power of sale and the mortgage money has become due

Question 16

what is the consequence of the remedy of foreclosure?

Answer 16

the mortgaged property is transferred to the mortgagee free of all rights of the mortgagor and any rights of the mortgagor are brought to an end

Question 17

what are the different types of mortgages?

Answer 17

instalment/repayment mortgage - monthly payments plus interest. ends after 25 years
endowment/interest-only mortgage - monthly payments made to cover the interest. other investments should repay the capital
overdraft mortgage
Islamic mortgage