Mortgages Flashcards
What is a mortgage?
A form of secured loan where the borrower (or mortgagor) grants the lender (the mortgagee) the right to take possession of their property if they default on the loan, and in return the borrower is in possession of the property.
What is the difference between a mortgage before and after 1926?
Before 1926 a mortgage was described as a conveyance where the legal title was handed over to the mortgagee (Santley v Wilde). Post 1926 the mortgagee no longer has the legal title but instead holds a charge executed by deed (ss 85 and 87 LPA 1925) which gives the lender rights (possession and sale) as security for their loan.
What is an equitable mortgage?
A mortgage that does not satisfy all the legal formalities ie no deed.
How is an equitable mortgage created?
- Following the formalities in s2 LP(MP)A 1989 ie written contract, signed by both parties and recording all the terms (United Bank of Kuwait plc v Sahib).
- Following the formalities in s53(1)(c) LPA 1925 for the disposition of equitable interest ie in signed writing by the mortgagor at the time of disposition.
According to De Serville v Argee Ltd what will not create an equitable mortgage?
An exchange of letters
What type of mortgage cannot be created if the mortgagor has equitable title?
A legal mortgage
Under the common law when did the mortgagor have to repay their loan? What is the date known as?
On the day specified in the mortgage deed. This is known as the legal date of redemption.
What was the effect if the mortgagor did not repay the whole value of the loan on the legal date of redemption?
The borrower forfeited the entire mortgage estate.
How did equity intervene with the harshness of the legal date of redemption?
Equity granted an ‘equitable right to redeem’ which allowed mortgagors to repay after the legal date of redemption
How did Lord Parker summarise the equitable right to redeem in Kreglinger v New Patagonia Meat and Cold Storage Co?
“once a mortgage, always a mortgage”
The equitable right to redeem is just one of the borrower’s equitable rights available in a mortgage. What is the name given to the sum total of the borrower’s equitable rights in a mortgage?
Equity of redemption
What is the common understanding of ‘equity’ in a property?
The financial difference between the outstanding loan and the market value of the house.
Why would a lender want to postpone the date of redemption?
To take advantage of interest or if they were evil to trap the borrower into defaulting on the loan.
May mortgagees postpone the legal date of redemption?
Yes, but not if it is postponed perpetually (Toomes v Conset) or there is ‘clog or fetter’ or it is so far in the future the right to redeem is illusory.
What two cases might we compare to help us understand when the right to redeem has been postponed too far in the future?
In Fairclough v Swan Brewery Co Ltd the date of redemption was six weeks before the end of a 17 and a half year lease. The court struck the clause down because by this point the lease would have minimal value and make the mortgage ‘irredeemable’.
By comparison, in Knightsbridge Estate Trust Ltd v Byrne the court upheld a date of redemption 40 years from the date of the loan because it was an arm’s length commercial transaction and gave a favourable rate of interest on a freehold property.
Why would an option to purchase given to the lender be struck out by the court?
Because it could exclude or prevent the borrower from exercising their right to redeem.
When may an option to purchase for the lender be allowed?
If it is a subsequent and independent contract from the mortgage (Reeve v Lisle)
How did the court suggest determining whether an option to purchase for the lender was part of a mortgage or not in Warnborough Ltd v Garmite Ltd?
The court should look at the ‘substance’ of a transaction not the label given to it.
How did the case of Brighton & Hove City Council v Audus confirm the principle in Warnborough Ltd v Garmite Ltd?
The court said even if a composite transaction includes a mortgage the court may determine it is not a mortgage deed, and so an option to purchase may stand.
What fact in Warnborough Ltd v Garmite Ltd might lead you to think the option to purchase should have been declared void?
The option to purchase and mortgage were granted on the same day after the claimant sold the property to the defendant.
Using the language of the courts when may a clause in a mortgage contract be struck down if it gives the mortgagee anything more than repayment plus interest ie collateral advantages?
If the collateral advantage is unconscionable, in the nature of a penalty, or if it is repugnant to the equitable right to redeem.
Give an example of a collateral advantage.
A solus tie ie an agreement where the borrower will purchase and sell on the goods of the lender. This is common amongst petrol companies and breweries.
Have courts upheld solus ties?
Yes, if they are not unconscionable and represent fair business (Biggs v Hoddinott), and don’t extend beyond the date of the mortgage (Noakes & Co Ltd v Rice) or wholly independent of the mortgage (Kreglinger v New Patagonia).
What kind of collateral advantage extending beyond the date of the mortgage did the court uphold in Kreglinger v New Patagonia Meat and Cold Storage Co? Why?
The right to first refusal of all New Patagonia’s sheepskins for a certain period was upheld because the two parties were businesses of equal value and the mortgage deed and right to first refusal were independent even though they were part of the same document.
