WS 9 - Legal Mortgages Flashcards by Matthew O'Connor

Formalities for creation of legal mortgage?

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

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

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.

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s.85(1) LPA 1925

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

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

Will trigger compulsory 1st title registration of the title.

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

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

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Registered title?

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

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Define mortgage

An interest in land given as a security for a loan

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Remedies for breach of mortgage terms?

Debt Action
Possession
Receiver appointment
Power of Sale
Foreclosure

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

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

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How useful is a debt action normally?

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

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What does POSSESSION allow?

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

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

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)

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Possession: what if the land is subject to lease?

Lender can direct tenant to pay him instead of borrower.

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When does the right to take possession arise?

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.

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MEE’s liability to account for MOR

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.

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Possession: How must MEE manage the property?

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])

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White v City of London Brewery Co.

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.

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s.36 Administration of Justice Act 1970

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.

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s.8 Administration of Justice Act 1973

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.

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

repayment schedule or sell house and pay back

Rapaigelach v Barclays [1999]

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.

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

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.

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

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

Power to appoint receiver become exercisable in which three situations?

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.

How should the receiver be appointed?

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

How must the receiver apply the income?

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

Power of Sale allows the MEE to do what?

MEE to recover capital. Brings mortgage to an end.

What statutory provision implies power of sale?

s.101 LPA 1925 - implies power of sale

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

Must have: BY DEED, ARISEN, BECOME EXERCISABLE.

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

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

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

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.

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

Give balance to borrower

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

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

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

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

What does FORECLOSURE allow the MEE to do?

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

When does the right to foreclosure arise?

. Date of redemption has passed, or | . MOR breached one of the terms of the mortgage

Effect of foreclosure?

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

Foreclosure is drastic, so what can court do?

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

What are the two stages of foreclosure?

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.

Why is foreclosure rarely used?

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.

Priority between legal mortgages, how is it decided?

. 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

s.48 LRA 2002

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

What if the mortgage hasn't been registered?

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

s.104(1) LPA 1925

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

When must registrable and IARE's be registered by?

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

When must overriding interests exist?

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)

AO and financing acquisition through mortgage?

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)