Mortgages

Question 1

What is a mortgage?

Answer 1

A conveyance of a legal or equitable interest in B’s land to L, with a provision that L’s interest shall end upon repayment of the loan plus interests and costs.

Question 2

North West Property Buyers - Acquisition Mortgages

Answer 2

As a matter of law there is no scintilla temporis between B’s acquisition of title and the creation of a mortgage; thus any potential equitable interest in the land must always rank second in time to the mortgage (provided its very existence depends on the acquisition of land financed by the mortgage) and cannot bind L.

Question 3

What was the principal innovation of the LPA 1925 as regards the creation of mortgages?

Answer 3

Mortgages no longer occurred through the conveyance of B’s entire estate to L, but rather through the creation of some lesser proprietary interest in the land for L.

Question 4

What are the 2 formality requirements for a fully effective charge over registered land?

Answer 4

1. It must be made by deed and declare itself to be a legal mortgage made by charge (S.87, LPA)
2. it must be registered to enjoy priority protection and gain the status of a legal interest. (S.25/27 LRA)

Question 5

What is the formality requirement for the mortgage of an equitable interest?

Answer 5

The document creating the mortgage must be in writing (S.53(1), LPA).

Question 6

How is a mortgage over an equitable interest effected?

Answer 6

The whole interest is conveyed to the mortgagee w/ a provision for reconveyance when the loan is repaid.

Question 7

When may a mortgage whose informality arises by lack of deed constitute an equitable mortgage?

Answer 7

When S.2 of the LP(MP)A has been observed - the mortgage is created by written instrument

Question 8

What is the main flaw in equitable mortgages? How woudl you advise the holder of an equitable mortgage over registered land?

Answer 8

It is vulnerable to disposition of the mortgaged estate. L should enter a Notice against the mortgaged registered title to risk losing priority against a properly registered purchaser of the land for VC.

Question 9

What is meant by the “equity of redemption”?

Answer 9

B always retains paramount legal title to the mortgaged estate, so he never conveys all he has to L. His residual rights, as well as his equitable right to redeem when the debt is repaid, constitute the equity of redemption.

Question 10

Jones v Morgan - the 3consequences of the doctrine “once a mortgage, always a mortgage”.

Answer 10

1. Any provision purporting to forfeit B’s right to redeem is void.
2. Any undue postponement or limitation on B’s right to redeem will not be enforceable.
3. Any contractual provision that the property shall at some point become B’s or gives B an option to purchase is void w/o more.

Question 11

Warnborough Ltd (once a mortgage…)

Answer 11

The true nature of the agreement must be determined by reference to its substance rather than the label given to it (here the “mortgage” was actually a sale and repurchase deal)

Question 12

Reeve v Lisle. How often will this apply?

Answer 12

An option to purchase the property given to L in a separate and independent transaction can be valid provided it does not de facto form part of the mortgage itself. Jones v Morgan (the option being given 3 years after the mortgage was created) illustrates such independence of the original mortgage will be difficult to show.

Question 13

Jones v Morgan - ratio

Answer 13

If upon fully paying off his loan, B by virtue of some agreement that is not separate and independent from the original mortgage, would not redeem the property in the state in which he mortgaged it, that agreement constitutes a clog on B’s equity of redemption and is unenforceable.

Question 14

What is the position on collateral advantages re the equity of redemption?

Answer 14

The earlier position was to strike down collateral advantages as clogs (Bradley v Carrit) but Kregliner indicates so long as the advantage ceases on redemption or allows B’s land to return to him in the same form it was mortgaged in, there is no objection.

Question 15

When may the court strike down an unconscionable term even when it does not amount to a clog on the equity of redemption? (NOTE from Jones v Morgan?)

Answer 15

LBW, Multiservice Bookbinding –

i. One party must be at a serious disadvantage to another so that circumstances existed of which unfair advantage could be taken.
ii. The weakness of the one party must have been exploited by the other in some morally culpable manner.
iii. The resulting transaction is overreaching and oppressive, with some impropriety in the conduct of the stronger party and the terms of the transaction itself which shocks the conscience of the court and makes it against equity and good conscience of the stronger party to retain the benefit of a transaction he has unfairly obtained.

NOTE Jones v Morgan - the mere fact that B has entered into a bad bargain will not suffice

Question 16

Nash (caveat from Pender?)

Answer 16

There is an implied term that a discretion to vary the interest rate shall not be exercised capriciously, arbitrarily or for an improper purpose; such a term “goes without saying” and gives effect to the reasonable expectations of the parties. There is also an implied term that the discretion will not be exercised in a way no reasonable lender would.

Pender accepted Nash in principle but observed that it did not stop L, for good commercial reasons, raising its interest rates to such a level that borrowers might be forced to seek refinancing elsewhere.

Question 17

When may a mortgage be struck down for UI?

Answer 17

When the mortgage was obtained by the direct UI of L, or by the UI of a 3rd party, attributable to L.

Question 18

Byrne

Answer 18

Even if B is released from the mortgage, she may be required to repay part of the loan if she derived some material benefit from it.

Question 19

Stevens v Leeder (actual UI)

Answer 19

C must not only have known what she was doing, but why she was doing it for the transaction to be free of UI.

Question 20

O’Brien - key diff between actual and presumed UI

Answer 20

If actual UI is shown C need not show that the transaction procured by UI was manifestly disadvantageous to her; it is sufficient that UI persuaded C to enter into a transaction they would not otherwise have entered into

Question 21

O’Brien - elements of presumed UI

Answer 21

There is

1. A r/s of trust and confidence
2. A transaction manifestly disadvantageous to C that calls for an explanation

Question 22

Etridge - what is the effect of the “presumption” in presumed UI?

Answer 22

The presumption is merely EVIDENTIAL. If a r/s of trust and confidence is shown by C the BoP shifts to the alleged wrongdoer to explain the impugned transaction. The presumption is not that UI exists, but that it will exist if the wrongdoer cannot explain the transaction.

Question 23

Etridge - what is the test for manifest disadvantage?

Answer 23

Lord Nicholls, commanding the support of the majority, preferred the analysis in Allcard v Skinner – was the transaction, absent a proper explanation, explicable only on the basis that UI had been exercised?

Question 24

Where L is not the wrongdoer, when will he be tainted by the UI of a 3rd party?

Answer 24

1. The wrongdoer’s UI over CBmust be proved.
2. L must be “put on inquiry” by its notice of the UI. L will be put on inquiry whenever a person is standing surety for the debts of another, provided the suretyship is not offered as a commercial service.

Question 25

What if B appears to be deriving some benefit from the mortgage?

Answer 25

If B is not merely a guarantor, but derives some benefit from it, L is not put on inquiry UNLESS it is aware the loan is really for W’s sole purposes.

Question 26

Etridge - if L is put on inquiry, what reasonable steps must he take to protect his mortgage?

Answer 26

L must insist that C attend a private meeting with L at which she is told of the extent of her liability, the risk she is running and urged to take independent legal advice. L must also

(i) Check with C the identity of the solicitor she intends to act for her
(ii) Advise C that it will seek written confirmation from the solicitor, with the intention that C will not later be able to dispute the mortgage
(iii) Aid the solicitor in properly advising C
(iv) Obtain written confirmation from the solicitor

Question 27

When will L not be able to rely on the solicitor’s written confirmation that B has been properly advised?

Answer 27

In general L can expect C to expect the solicitor to act properly for his client and can rely on the written confirmation that advice has been given. However if L has constructive knowledge that C was not properly warned of the nature of the transaction or the risk it posed, or some material untruth in the written confirmation, (e.g. the facts of Amin, pre-Etridge), L will not be entitled to rely on the solicitor’s written confirmation.

Question 28

Caplan - effect of UI (cf Byrne?)

Answer 28

If B can only establish that part of the mortgage transaction is void for UI, that void part can be severed with the balance of the mortgage remaining valid (cf Byrne; the approach was to void the entire mortgage although only part of it was tainted by UI, on the condition that B gives credit to the mortgagee for any sums advanced that resulted in a benefit to C)

Question 29

Tinsley - effect of UI

Answer 29

If an initial mortgage is void for UI, a replacement mortgage paying off the initial mortgage will also be void

Question 30

Criticism of Byrne for effect of UI?

Answer 30

The benefit received by C is not really relevant; why should C be held to account for a benefit they may not have wanted and given in a transaction already held to have been procured by UI? Arguably Caplan is therefore to be preferred.

Question 31

Slayford - remedies of L

Answer 31

L may employ his remedies concurrently or successively “until payment in full is recovered or the mortgagee acts in a way which amounts to an election”

Question 32

When will L be able/want to execute a personal contractual action for repayment?

Answer 32

Such a personal action only accrues to L when the contractually stipulated legal date of redemption has passed. The contractual action will usually be employed if B has sufficient additional assets to meet their liability and a sale of the property will not raise enough money to fully pay offf the debt.

Question 33

What is the limitation period on the contractual action for repayment? (Rashid)

Answer 33

S.8/20 Limitation Act - the right to sue arises from a specialty, so L has 12 years from the date of default to sue B for the principal sum.
Rashid - acknowledgment of the debt by B will restart the limitation period.

Question 34

Bryant - L’s remedies

Answer 34

Since the action is in debt and not for breach of contract, L is NOT under a duty to mitigate its loss and therefore cannot be compelled to exercise any of its other remedies.

Question 35

When may the power of sale be exercised by L?

Answer 35

S.101, LPA implies a power of sale into every mortgage by deed unless a contrary intention appears.

1. B must be in default (power arises).
2. One of the conditions in S.103, LPA must be satisfied (power may be exercised).

Question 36

How can L, a mere mortgagee, transfer legal title?

Answer 36

L has the right to the economic value of the land used as security for his loan.

Question 37

What if L sells before B is in default?

Answer 37

Since the power of sale has not arisen, the purchaser obtains only L’s interest and B remains unaffected.

Question 38

What if L sells before S.103 of the LPA has been satisfied?

Answer 38

The purchaser takes the land free of the mortgage, save that B may be able to set the sale aside if the purchaser had notice of L’s fault (S.104 LPA/Cuckmere Brick Co)

Question 39

Walker

Answer 39

Equity imposes a DoC on L to obtain the best price reasonably possible.

Question 40

Miller (DoC best price)

Answer 40

If a number of offers are made for the property, the court will consider the steps L took to market the property and then consider whether in accepting the offer to contract at a price, this was an acceptable bracket for the property

Question 41

Silven Properties (DoC best price)

Answer 41

There is no obligation on L to take those steps an owner might take in selling the property (e.g. granting leases, pursue planning apps)

Question 42

Is L always liable for failing to take proper steps to market the property?

Answer 42

Meah - not if L’s failure does not result in a lower price than that reasonably obtainable.

Question 43

What is the relevance of L’s motives in exercising the power of sale?

Answer 43

Since L is not a trustee of the power of sale, his motives are generally irrelevant, but it would be a breach of duty if debt recovery did not form ANY part of his motive (Meretz Investments)

Question 44

Williams (selling to oneself)

Answer 44

L may not sell the property to himself, his agent or his employer

Question 45

Mardner (selling to oneself)

Answer 45

If L sells the property to a company he is associated with, the BoP of establishing that the sale was at the best price reasonably obtainable lies with L

Question 46

Blake (L’s liability to B)

Answer 46

Illustrates that liability to B will generally be in the form of damages representing the difference between the price obtained and the best price reasonably obtainable

Question 47

When may a sale by L be set aside? (Corbett, Palk)

Answer 47

The sale will be set aside if it was to a purchaser connected to L (Corbett) or with actual knowledge of the impropriety surrounding the sale at an undervalue (Palk)

Question 48

Must L be in possession to sell?

Answer 48

S.2(1)(iii)/S.101(1)(i) LPA - L may convey the legal estate to the purchaser even if B remains in possession. However taking possession before sale is advantageous as it minimises the risk of B sabotaging the sale and will usually lead to a higher price.

Question 49

How may L seek possession? How may L be kept from possession?

Answer 49

Possession arises as of right and may be sought before the ink is even dry on the mortgage, even if B is not in default (Dudley Marshall). It may be sought through self-help (Ropaigealach).

Only equity and statute can keep L from possession since it is a right, not a remedy.

Question 50

B has mortgaged a bar. L takes possession of the bar, but owing to mismanagement the bar’s takings drop by 20%. Discuss.

Answer 50

White - L in possession of the mortgaged premises will be strictly called to account for any income generated by their possession.
L will be taken to have received income that should have been received if the property had been managed to the high standard required, with any shortfall in the actual income being accounted for by L (L may even end up owing B money).

Question 51

Discuss the protection offered to B under S.36 of the AJA. How effective is it?

Answer 51

If L brings an action for possession of land “consisting of or including a dwelling house” for any reason, a court may suspend, adjourn or postpone L’s application for possession if it appears that B would be likely to pay within a reasonable period any sums due under the mortgage.
However L can bypass this protection by selling the land while B remains in possession, so that the possession order will be sought by the purchaser rather than L.
Moreover the protection is not available if L has already recovered possession w/o a court order (Ball) which it has the legal right to do.

Question 52

Miller (S.36 AJA)

Answer 52

Whether the property is a “dwelling house” is to be determined at the time the possession order was sought

Question 53

What is the meaning of “any sums due” in S.36 AJA?

Answer 53

S.8 - the phrase refers only to those instalments that have not been paid by B as they fell due and not the whole debt

Question 54

What is the meaning of “a reasonable period” in S.36 AJA?

Answer 54

Norgan – “a reasonable period” may comprise the rest of the term; in devising this term the court should consider factors such as whether L is in temporary difficulty, the contractual terms relating to repayment of the capital sum (e.g. instalments?), value of the land vs value of the debt

Question 55

Lloyd (S.36 AJA)

Answer 55

If B’s sale of the property is likely and likely to enable B to repay all monies due within a reasonable period this could justify an order under S.36

Question 56

Why should L attempt to resist a possession order under S.36?

Answer 56

L shouldn’t; it gives them both an (suspended) order for possession and an order requiring B to repay the arrears according to a fixed schedule, offering greater legal certainty to the framework for debt repayment.