WS 9 - Legal Mortgages

Question 1

Formalities for creation of legal mortgage?

Answer 1

Mortgage is one of the 5 interests in land capable of being legal (s.1(2) LPA 1925)

Must be created by deed, s.52(1) LPA 1925

s.1 LP(MP)A 1989 - signed, witnessed and delivered as a deed, says its a deed

Question 2

How can mortgage be created over leasehold estate? s.86(1) LPA 1925:

Answer 2

A mortgage can be created over leasehold estate either by way of legal charge or the creation of a sub-lease for 1 day less than term of lease being mortgaged.

Question 3

s.85(1) LPA 1925

Answer 3

Where 1st legal mortgage created over unregistred land, gives mortgagee right to take custody of title deeds

Question 4

What does the first legal mortgage do? (unregistered land)

Answer 4

Will trigger compulsory 1st title registration of the title.

Question 5

What about where mortgagor takes out second mortgage? (unregistered land)

Answer 5

If the first mortgagee has the title deeds, then the second mortgagee can only have a puisne mortgage and this must be registered as a C(i) land charge at the Land Charges Department

Question 6

Registered title?

Answer 6

s.27 LRA - registered dispositions needs to be registered by a charge by date of registration of new owner.

Question 7

Define mortgage

Answer 7

An interest in land given as a security for a loan

Question 8

Remedies for breach of mortgage terms?

Answer 8

Debt Action
Possession
Receiver appointment
Power of Sale
Foreclosure

Question 9

What must be checked before starting recovery of debt under debt action?

Answer 9

Before starting the action, must check the legal date of redemption has not passed (usually 1 month from date of mortgage - but specified in mortgage deed normally)

Check recovery not barred by Limitation Act 1980 - cannot recover arrears of capital payments if due date was 12 years ago or more

Question 10

How useful is a debt action normally?

Answer 10

Little assistance - unlikely to have money if they can’t afford mortgage payments

Question 11

What does POSSESSION allow?

Answer 11

Allows the MEE to recover interest and arrears due but not capital originally lent. Mortgage still continues

Question 12

What can the mortgagee re possession if the land is NOT subject to a lease?

Answer 12

The MEE can oust the MOR from the property and take PHYSICAL possession of the land (although s.6 Criminal Law Act 1977 - using/threatening violence to take possession = criminal offence. Should go to court and obtain a court order to take possession)

Question 13

Possession: what if the land is subject to lease?

Answer 13

Lender can direct tenant to pay him instead of borrower.

Question 14

When does the right to take possession arise?

Answer 14

Four Maids v Dudley Marshall [1957] - “Before the ink is dry”. No need for mortgagor to default. However, most mortgage deeds impliedly/expressly postpone this right until MOR is in default.

Question 15

MEE’s liability to account for MOR

Answer 15

When the property is producing income, the MEE can use it to pay off debt owed to him. He cannot take any money beyond debt owed.

Question 16

Possession: How must MEE manage the property?

Answer 16

Owes MOR a duty to manage the property with due dilligence. If he does not he must account to MOR for the income earned, plus what would have been earned had he managed correctly (White v City of London Brewery Co [1889])

Question 17

White v City of London Brewery Co.

Answer 17

MOR was letting property as a free house. MEE took possession and let as tie house. Less rent. MEE had to account to MOR for the additional rent which would have been received had the property remained as a free house.

Question 18

s.36 Administration of Justice Act 1970

Answer 18

Where MOR brings an action, court can adjourn proceedings if it thinks the MEE will be able to pay or remedy the breach of mortgage in a reasonable time.

Question 19

s.8 Administration of Justice Act 1973

Answer 19

Where the mortgage deed provides for sum to be repaid in installments, “sums due” means only installments in arrears at time of possession proceedings, not the full amount outstanding on the mortgage.

Question 20

What will most cases have (where court thinks MOR can remedy default in reasonable time)?

Answer 20

repayment schedule or sell house and pay back

Question 21

Rapaigelach v Barclays [1999]

Answer 21

MEE remains entitled to exercise his right to possession by physical re-entry without bringing court proceedings (usually where property is empty). Will bypass s.36 AJA 1970. Only protection lies in criminal law. Protection from eviction Act 1977 does not apply to MORs in same way as leases and licences. BUT - may violate s.8 ECHR.

Question 22

What does the appointment of a receiver allow the MEE to recover? What is the great advantage of appointing a receiver?

Answer 22

Allows MEE to recover interest and arrears but not mortgage capital. Mortgage continues.

Mortgagee does not bear personal responsibility for collection etc., but gets benefit of some of income to repay debt.

Question 23

What are the requirements to be able to appoint a receiver to collect and redirect income from the property?

Answer 23

1. Mortgage was created by deed - Power to appoint a receiver is implied into every mortgage by deed (LPA 1925, s.101)
2. The power has ARISEN (i.e. date of redemption has passed) &
3. The power has become EXERCISABLE (s.103 LPA 1925)

Question 24

Power to appoint receiver become exercisable in which three situations?

Answer 24

s. 103 LPA 1925:
1) Lender has served notice for repayment of loan and borrowers have failed to comply for 3 MONTHS
2) Interest 2 MONTHS in arrears
3) The borrowers have BREACHED A TERM under the mortgage deed

Requirements often altered in mortgage deed in favour of mortgagee.

Question 25

How should the receiver be appointed?

Answer 25

Writing (s.109 LPA 1925) - unless deed provides otherwise

Question 26

How must the receiver apply the income?

Answer 26

s.109(8) LPA 1925: In order set out:

a) Outgoings on property
b) Interest on any prior mortgages
c) Insurance premiums on property & his own costs
d) Interest on current mortgage
e) Capital on current mortgage if directed to do so in writing by MEE
f) The balance to the MOR

Question 27

Power of Sale allows the MEE to do what?

Answer 27

MEE to recover capital. Brings mortgage to an end.

Question 28

What statutory provision implies power of sale?

Answer 28

s.101 LPA 1925 - implies power of sale

Question 29

What must be satisfied for MEE to exercise power of sale?

Answer 29

Must have: BY DEED, ARISEN, BECOME EXERCISABLE.

Question 30

When lenders exercise power of sale what do they need to check?

Answer 30

s.104 LPA 1925 - Provides buyer with some protection if MEE doesn’t follow correct procedure when he sells. MUST CHECK THE POWER HAS ARISEN, BUT NEED NOT CHECK IT IS EXERCISABLE

Question 31

Is the purchaser bound by third party interests? (power of sale)

Answer 31

s. 104(1) - Buyer gets the whole estate:
a) Free from interests which the selling MEE took priority over.
b) But subject to any estates and interests which took priority over selling MEE.

Question 32

What do the lenders do in power of sale action once they have paid themselves back?

Answer 32

Give balance to borrower

Question 33

What are the duties owed by lender to borrowers when exercising power of sale?

Answer 33

Cuckmere Brick Co. v Mutual Finance [1971]

a) Good faith and do not cheat borrowers
b) Lenders must take care to obtain the true value of the property. However, they are not under a duty to postpone sale to maximise value

Question 34

Once sale of power is exercised, how should proceeds by distributed?

Answer 34

s.105 LPA 1925:

a) Repay cost of redeeming mortgages with priority
b) Pay off MEE’s expenses of sale
c) Pay off MEE’s own mortgage
d) Pay off mortgages over which the selling MEE has priority (of which the selling MEE has notice)
e) Send any balance to MOR

Question 35

What does FORECLOSURE allow the MEE to do?

Answer 35

Allows MEE to recover capital. This will bring the mortgage to an end.

Question 36

When does the right to foreclosure arise?

Answer 36

. Date of redemption has passed, or

. MOR breached one of the terms of the mortgage

Question 37

Effect of foreclosure?

Answer 37

Vest ownership of MOR’s property in MEE, leaving MOR with no claim over land. Other MEEs lose their claims. Borrower retains NO EQUITABLE INTEREST

Question 38

Foreclosure is drastic, so what can court do?

Answer 38

Equity gives court wide discretion to allow MOR to redeem even after an order for foreclosure has been made.

Question 39

What are the two stages of foreclosure?

Answer 39

1) MEEs obtain INTERIM COURT ORDER. This fixes a date by which MOR should pay outstanding money. If no pay then:
2) MEEs can obtain a FINAL ORDER/ORDER OF FORECLOSURE ABSOLUTE. Following this, MORs cannot redeem unless court exercises its discretion and allows them to.

Question 40

Why is foreclosure rarely used?

Answer 40

s.91(2) LPA 1925 allows “any person interested either in the mortgage money or right of redemption” to request the courts make an order for sale instead of FC.

Question 41

Priority between legal mortgages, how is it decided?

Answer 41

. When land is sold, MEE who ranks 1st in priority gets paid back IN FULL, first, before the others, then second etc.

. To determine order of priority - apply rules of enforceability of 3rd party rights

Question 42

s.48 LRA 2002

Answer 42

The order of priority of registrable charges depends upon the order in which they were entered into the register.

Question 43

What if the mortgage hasn’t been registered?

Answer 43

It only takes effect in equity. Equitable mortgage is an IARE, under s.27 LRA 2002.

Question 44

s.104(1) LPA 1925

Answer 44

The mortgagee is freed from all proprietary interests made after the mortgage, but held subject to those interests created correctly before.

Question 45

When must registrable and IARE’s be registered by?

Answer 45

date of reg of mortgage to take priority over it (s.29 LRA)

Question 46

When must overriding interests exist?

Answer 46

Under sch. 3 LRA, but date of reg of mortgage. Exception is Sch3para2 AO which must exist by time of creation of mortgage (Abby National v Can)

Question 47

AO and financing acquisition through mortgage?

Answer 47

when mortgage taken to finance acquisition of a property, any equitable interest arising through a contribution to the purchase price will ONLY be overriding interest if the person holding the interest was in occupation of the property at the date of mortgage was created. In most cases people dont move in until after purchase completed, so usually unlikely that equitable interest will bind the MEE.

(Lloyds Bank v Rossett; Abbey National v Can; Bristol and West v Henning)