Mortgages Flashcards
How do you validly create a mortgage over registered land?
Deed + Registration
LPA 1925 s1(2)(c): Deed which is executed by the borrower and registration at the Land Registry
Deed must comply with LP(MP)A s1
- Clearly intended to be a deed
- Validly executed
- Delivered
What is a mortgage?
A bundle of proprietary rights granted to the lender as security for a loan
How is a mortgage registered?
At the Land Registry.
What happens if a mortgage is not registered?
Will not take effect as a legal mortgage in the land but could still be an equitable interest
When will mortgages be equitable?
If the borrower only holds an equitable interest in the land, or the mortgage is a defective legal mortgage
How can a mortgage of an equitable interest in land be created?
Can be created very informally
Needs to be in writing and signed by the grantor
When will a defective legal mortgage be considered an equitable mortgage?
Will be considered equitable if it complies with LP(MP)A S2.
In writing
Contains all agreed terms
Signed by both the mortgagor and mortgagee.
How is a mortgage discharged?
Once repaid in full, mortgage entries at the Land Registry must be cancelled.
What is the equity of redemption?
Equity intervening to soften the harshness of the principle that if a mortgage is not paid back in full by the legal date of redemption, it the lender can repossess.
What is the financial value of the equity of redemption?
Market value of property, subtracting the outstanding debt.
What are the four key features of the equity of redemption?
It exists alongside the legal right to redeem
Cannot postpone or prevent redemption
No collateral advantages
No unconscionable terms
When does the equitable right to redeem arise?
The day after the legal date of redemption.
When it is acceptable for redemption to be delayed?
If the borrower gets back what the mortgaged, and there is something in return e.g. favourable low rate on the mortgage.
Why are options to purchase for the lender a clog on the equity of redemption?
It deprives the borrower of the right to take back the property free of a loan.
Courts are likely to strike out, particularly in domestic cases.
When are options likely to be valid / invalid?
Valid if granted independent of the mortgage, but not if granted at the same time as the mortgage.
Court will look at the substance of a transaction to consider if it is substantially a mortgage or not.
When will collateral advantages be struck out of mortgages?
If they are unconscionable, in the nature of a penalty, or if they are repugnant to the equitable right to redeem.
When will solus ties be upheld in commercial transactions?
If they end within the mortgage term, as long as not oppressive.
When will unconscionable terms be struck out?
Excessive interest rates, particularly when the bargaining power between parties is not fair.
What test considers whether a term is unconscionable?
Whether it has been imposed in a ‘morally reprehensible manner’?
How does the priority of mortgages work for registered charges (legal mortgages)?
The priority of the charges depends on the order in which they are entered onto the register - NOT created. If made at the same time, application for registration will specify order of priority.
How do equitable mortgages rank against one another?
In order of creation - in accordance with the basic rule that all equitable interests rank in order of creation, as they can exist without registration.
How can an equitable mortgage over registered land be protected?
By entering a notice on the charges register.
What is the effect if an equitable mortgage is protected by entry of a notice on the charges register?
It will take priority over a subsequent legal mortgage ; but if only competing with other equitable mortgages, the priority will stay determined by creation.
What happens if an equitable mortgage is not protected?
It will lose its priority to a new legal mortgage granted afterwards.
What would lenders need to do to renegotiate the order of priority of mortgages?
Enter a deed of priority or intercreditor deed
Would need to be registered at the Land Registry.
What rights does a lender holding a security of a legal mortgage have?
Debt action
Possession
Sale
Receiver
Foreclosure
When / how are debt actions used?
Alongside other actions particularly if there is negative equity.
What is the limitation period for the recovery of debt?
12 years for the recovery of capital
6 years for the recovery of interest
How is possession approached?
Must be a last resort - mortgage lender should explore alternative arrangements e.g. extending mortgage term / new payment plan
What does the power of sale confer?
Strongest power - to sell property and use proceeds against the debt. Power of sale must have arisen (statutory basis) and lender must comply with its duties.
What does the power of receivership confer?
Receiver is a manger of a mortgaged property if lender doesn’t want to take possession or sell.
Reciever’s function is to get income from the land. Must act with due diligence.
What is foreclosure?
Allows a lender to take the mortgaged property to satisfy the debt - freehold will vest in the lender, borrower loses all rights in the property.
Rare / draconian
What restrictions are there on the lender’s right to possess?
Criminal Law Act 1977
Pre-Action Protocol 2008
Common law jurisdiction to postpone
Statutory jurisdiction to postpone
What effect does the CLA have on the lender’s right to repossess?
It is a criminal offence to use or threaten violence for the purpose of gaining entry to the property - sensible to apply to court for an order for possession.
What is the statutory jurisdiction to postpone?
Under the Administration of Justice Act, there is the power to postpone the date for delivery of possession for such period as the court thinks reasonable - subject to such payment conditions as the court thinks fit.
What can / can’t the court do under AJA s36?
CANT
Prevent lender from exercising right to possess altogether
Enable court to postpone possession if no order has yet been made
Allow a lender to circumvent a court order
CAN
Adjourn possession proceedings
Stay / postpone execution of the possession order
- Only if the court thinks that the borrower is likely to be able to pay any sums due within a reasonable period.
How does the court approach ‘any sums due’ under AJA, s36?
Arrears and accrued interest, not the whole of the mortgage debt. Borrower should show a detailed financial plan of how they’ll repay
How does the court approach ‘within a reasonable period’ under AJA, s36?
Remainder of the mortgage term
Is a court order required for a sale by a lender?
No, it is a right of the lender. However, it must exist, have arisen and become exercisable.
When does the right to sell exist?
If expressly contained in mortgage documents
Implied under LPA 1925 unless excluded.
When does the lender’s right to sell arise?
When the mortgage money becomes due.
Interpreted as ‘one portion of capital due’ for a capital and interest mortgage.
If mortgage is interest only - capital is not due until the end of the loan term - becomes due at the end of the legal redemption date - 6 months from start of the mortgage.
What happens if a lender sells after the power has arisen but before it is exercisable?
Sale to an innocent purchaser will be valid but lender will be liable in damages
When is the right to sell exercisable?
One of the following three criteria applies:
- Notice requiring payment of the whole loan has been served by the lender and borrower has defaulted
- Some interest is unpaid and arrears for at least two months
- There has been some breach of another mortgage provision such as a covenant
What happens to the surplus proceeds of a sale by a lender?
They are the trustee of the surplus proceeds of sale and must hand them to the next person entitled.
What duties do lenders have?
Lender owes a duty to take reasonable care to obtain the true market value or proper price for the property
Perfection as to price is not required
Lenders must take expert advice as to the method of sale / marketing / reserve price
Lender has discretion as to when to sell
