Mortgages Flashcards
Priority rules - Against other mortgagees
When the land is sold the lender who ranks first in the order of priority is entitled to be paid back in full first before the other lenders get any money. If you register the mortgage first then you will come first in the order of priority. If you fail to register the mortgage then the mortgage can only take effect in equity. An equitable mortgage is an interest affecting a registered estate under the Land Registration Act 2002 and as it has not been registered it does not bind the buyer.
Priority rules - Against other 3rd party rights - Pre-2003
To decide whether the interest is binding on the mortgagee first check whether the interest was created before or after the date of registration of the mortgage. if the interest is created after the mortgage the lender will not be bound unless it has given consent to the interest e.g the granting of a lease by the mortgagor.
Priority rules - Against other 3rd party rights - After 2003
All registrable dispositions must be registered and interests affecting a registered estate must be protected by a notice on the register by the date of registration of the mortgage to take priority over it. All interests which override under Sch 3 to the Land Registration Act 2002 must exist by the date of completion of the mortgage to take priority over it.
Remedies - Remedies that the mortgagee against the property
The two remedies that the mortgagee has against the property of the mortgagor are possession and appointing a receiver. Both of these will enable the mortgagee to recover arrears but not to secure repayment of all sums owed by the mortgagor. The mortgage itself will continue.
Remedies - To recover all sums owed
Two remedies, the power of sale and foreclosure will allow the mortgagee to recover all sums owed under the mortgage and both of these will bring the mortgage to an end.
Remedies - Debt action
Recover the debt by an action for repayment. If the borrower has failed to make the payments he has agreed to make the mortgagee can commence an action for the recovery of the debt. If the borrower has failed to make the repayments on the mortgage it is highly unlikely that they will have the money to satisfy any court order for repayment that may be made against them; mortgagees are more likely to use one of their remedies against the property itself – therefore rarely used.
Remedies - Debt action - Pre-conditions
Before starting the action they must check that the legal date for redemption has passed as the right to ask for repayment does not arise until this date has passed – usually set at one month from the date of the mortgage. The lender cannot recover arrears of interest payments if they have been outstanding for more than 6 years.
Remedies - Possession
The right to take possession of land can mean one of two things:
- If the mortgaged land is not subject to a lease the lenders have a right to oust the borrowers from the property and to take physical possession of the land
- If the mortgaged land is subject to a lease the lenders take possession of the land by directing that the tenants pay their rent to the lenders instead of to the borrowers
Remedies - Possession - Mortgagee’s liability to account to the mortgagor
The mortgagee will take possession in order to sell the property or to intercept the income from it. Where the property is producing income the mortgagee is entitled to use it to pay the debt owed to him. However they are not allowed to take any sum beyond that which is due to him under the mortgage.
Remedies - Possession - Pre-conditions
Lenders can take possession of the mortgaged property as soon as the mortgage has been completed. The mortgagee should apply to court for a possession order.
Remedies - Appointment of a receiver
The mortgagee can appoint a receiver to collect and redirect the income from the property. The advantage is that the mortgagee does not incur the personal responsibility which is involved in taking possession but nevertheless gets the ability to use some of the income to repay the debt owed to him. If the mortgagee does appoint a receiver the receiver takes control of the mortgaged land and then either sells it or manages it and uses the income from it to repay the loan.
Remedies - Appointment of a receiver - Pre-conditions
- The mortgage was created by deed. The power to appoint a receiver is implied into every mortgage made by deed S. 101 LPA 1925. The power will often be expressly included as one of the mortgage terms in any event
- The power has arisen (ie. The legal date of redemption has passed) and has become exercisable
For the power is exercisable and it happens if any one of 3 situations apply: - The lenders have served notice on the borrowers requiring repayment of the loan and the borrowers have failed to comply with that notice for 3 months after service
- Interest due under the mortgage is 2 months or more in arrears
- The borrowers have breached a term under the mortgage deed (e.g a borrowers’ covenant not to grant leases without first obtaining the lenders’ consent)
Remedies - The power of Sale
When lenders exercise their power of sale they sell the mortgaged property and use the proceeds of sale to pay themselves back the sum that they are owed under the mortgage
Remedies - The power of Sale - Pre-conditions
First requirement is the express or implied term in the mortgage deed to give the power of sale. The statutory power of sale is implied into every mortgage created by deed S. 101 LPA 1925 and is usually expressly included in the mortgage deed. Before the mortgagee sells the property the power of sale must have arisen and become exercisable. The power of sale arises on the legal date for redemption S. 101(i) and becomes exercisable when one of the conditions in S. 103 of the 1925 act has been complied with.
Remedies - Foreclosure
The effect of foreclosure is to vest ownership of his property in the lender
