Mortgages

Question 1

What is a Legal Mortgage?

Answer 1

A Mortgage with Proprietary Status, given over a Legal Estate.

LPA 1925, s. 1(2)(c)

Question 2

What are the formalities of a Legal Mortgage?

Answer 2

It must be Registered and Executed as a Deed.

Question 3

What is an Equitable Mortgage?

Answer 3

• A defective Legal mortgage; or
• A Mortgage of an Equitable Interest, signed and in writing.

Question 4

When is a Mortgage considered Discharged?

Answer 4

When it is completely removed from the Register of Charges.

Question 5

What is the Equity of Redemption?

Answer 5

A bundle of rights that recognise the Borrower as the Property’s true owner and protect their rights as such.

Question 6

Which rights comprise the Equity of Redemption?

Answer 6

• The Equitable Right to Redeem.
• Protection from collateral advantages.
• Protection from unconscionable terms.
• Protection from the postponement or prevention of redemption.

Question 7

What is the Equitable Right to Redeem?

Answer 7

The Borrower’s right to repay its debt, even after the contractual repayment date has passed, and have the Mortgage discharged.

Question 8

What is the Right to Protection from Collateral Advantages?

Answer 8

Protection from attempted extractions of value beyond repayment of capital and interest, especially past the redemption date, by the Lender.

There are exceptions, such was with solus tie provisions in certain commercial mortgages. Further investigation necessary.

Question 9

What is the Right to Protection from Unconscionable Terms?

Answer 9

Protection from terms that are unfair, oppresive, or unreasonable given the context.

‘Morally reprehensible’ is an oft-used term in this matter.

Question 10

What is the Right to Protection from the Postponement of the Right to Redeem?

Answer 10

Protection from clogs or fetters on the equitable right to redeem.

Critical considerations include whether the Borrower gains some benefit or will have returned to them precisely what they mortgaged.

Question 11

Is an Option to Purchase an infringement upon the Equitable Right to Redeem?

Answer 11

Not if it is genuinely independent of the mortgage.

For example, it arises from a separate transaction entered into after the mortgage.

Question 12

Generally, what determines the Priority of two Registered Charges, i.e. Legal Mortgages?

Answer 12

Time of registration.

LRA 2002 — s. 48.

Question 13

Generally, what determines the Priority of two Equitable Mortgages?

Answer 13

Time of creation.

LRA 2002 — s. 28.

Question 14

When will an Equitable Mortgage take Priority over a Legal Mortgage?

Answer 14

When it is protected by entry of a Notice on the Register prior to the Legal Mortgage’s Registration.

LRA 2002 — s. 29(1), 32.

That said, time of creation will always determine priority between two Equitable Mortgages.

Question 15

How can Chargees alter priority amongst themselves?

Answer 15

By agreeing a Deed of Priority or an Intercreditor Deed, which they subsequently register at the Registry.

Question 16

What are the Remedies available to a Lender in case of a Default?

Answer 16

• Sale: Sell the Property to recover the shortfall.
• Receivership: Appoint a Receiver to manage the Property.
• Repossession: Retake possession of the Property as a precursor to sale.
• Debt Action: Bring a personal action against the Borrower to recover the shortfall.
• Foreclosure: Oblige a transfer of the Freehold in the Property to discharge the debt, very rare in practice.

An Equitable Mortgagee will generally not have the right to sell or repossess without a court order.

Question 17

When may a Lender pursue a Debt Action?

Answer 17

When the Property’s value is insufficient to cover the shortfall.

Conversely, if the Property’s value exceeds the shortfall, the surplus must return to the Borrower.

Question 18

Why would a Lender Repossess before a Sale?

Answer 18

• To use the Property to generate revenue.
• To increase the Property’s value during the sale process.

Question 19

Why may Receivership be safer than Repossession for the Lender?

Answer 19

The Lender cannot be held Liable for the Receiver’s Negligence, since it is the Borrower’s Agent.

Question 20

Is Repossession a Right or a Remedy of the Lender?

Answer 20

A Right that is conditional upon Default.

LPA 1925 — s. 95(4).

Question 21

The Deed notwithstanding, when may the Lender’s Right of Repossession be postponed?

Answer 21

The Court may Order Postponement if:

• The Property is partly or wholly Residential; and
• The Borrower seems likely to pay arrears and interest within a reasonable time; but only if,
• Repossession Proceedings have already begun.

Administration of Justice Act 1970 — s. 36.

Question 22

Is Sale a Right or a Remedy of the Lender?

Answer 22

A Right, deriving from the Deed and Statute.

LPA 1925 — s.101(1)(i).

Question 23

When is the Lender’s Statutory Right to Sell exercisable?

Answer 23

When any of the following occurs:

• Interest is unpaid for at least 2 Months.
• The Borrower defaults and the Lender serves Notice of Acceleration.
• The Borrower breaches a non-payment provision of the Mortgage Deed, particularly if it may decrease the Security’s value.

LPA 1925 — s.103.

Question 24

What Duties does the Lender owe when exercising the Right to Sell?

Answer 24

Vis-à-vis the Borrower, the Lender is obliged to:

• Take reasonable care to obtain the true Market Value for the Property.
• Take expert advice as to the method of sale, the marketing strategy, and the reserve price.

That said, the Lender has unfettered discretion as to when to sell and cannot be expected to delay in order to attain the perfect price.