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55 Cards in this Set
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Legal mortgages: the right to redeem |
Mortgagor is entitled to recover the property free from the charge. Two types: (a) Equitable RtR - exercisable irrespective of the terms of the contract (b) Contractual RtR - typically set six months from when the mortgage is granted |
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The mortgagor's equity of redemption: refers to all the rights retained by the mortgagor. The mortgagor always retains paramount legal title to the estate. Santley v Wilde (1899) (for clarifying comments see Hoffman at [226] in Re Bank of Credit and Commerce Intl (No. 8).) |
The RtR is not a personal right, but an equitable estate/interest in the mortgaged property. S v W on 'collateral advantages': case by case analysis. If the collateral advantage restricts/fetters the RtR then they are not allowed. Kreglinger v New Patagonia Meat Co: if the parties are commercial and operate at arms' length, then the collateral advs may be allowed to continue past the RtR. |
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Contractual right to redeem |
The mortgagor has a contractual right to pay off the mortgage and extinguish the mortgagee's proprietary interest in the property. Often the M'or will not pay off the M by the contractual date, but equity intervenes so the M'or still has the right to redemption. The passing of the date triggers the availability of remedies to the M'ee. |
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Equitable right to redeem (Part of the wider rights available to the M'or under the 'equity of redemption') Basis for the equitable approach: Ms are not meant as a way to acquire property, but as security for a debt. |
Established in: Thornborough v Baker (1677). Payment of (i) the principal debt, (ii) interest, and (iii) costs --> the M ends, even after the contractual date has passed. |
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The rule against irredeemability Jones v Morgan |
Ms cannot be irredeemable, i.e. it must be possible to pay them off. J v M: any provision which states that not paying off on the expiry of the legal RtR (i.e. the contractual date) is void. Undue restriction or postponement of the RtR is unenforceable. |
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Attempts to purchase the property (repugnant to the nature and purpose of Ms) Mortgagees may use of their usual powersonly in the event of the M'or's default. |
Jones v Morgan: a contract which gives the mortgagee the option to purchase the property is void in equity and at law. You must show: (i) that the transaction was an M (determined by looking at the substance, not the label: Warnborough Ltd v Garmite Ltd) (ii) that the offending term was part of the M. |
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LEGAL MORTGAGE CREATION Unregistered land: mortgage created by long lease/charge. Registered land: this can only be done by charging the land under s 23 of the LRA 2002. Further requirements for a legal mortgage: |
A mortgage of a legal title as a registrable disposition must... (i) be made by deed - LPA 1925, ss 52(1); (ii) be registered - LRA 2002, s 27. Failure to register means the mortgage defaults to an equitable mortgage. However, s 51 of the LRA 2002 cures formality defects so that even in the absence of a deed, a valid legal charge exists ASK ABOUT THIS. |
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Swift 1st v Chief Land Registrar |
Registering a mortage under the the LRA 2002 guarantees the legal mortgage's legal validity as a charge on the title. |
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EQUITABLE MORTGAGE CREATION Arise in a few different circumstances. Not as good as an LM; no priority protection under s 29 LRA 2002 because it is not a registered disposition, so it is vulnerable to a registrable disposition of the mortgaged title. |
(1) Mortgagor has only an EI in land. M must be created in writing. LPA 1925, s 53(1)(c). (2) Legal interest created in writing, but not by deed. LP(MP) 1989, s 2. E.g. Bank of Scotland plc v Waugh. (3) Failure to register the charge. Required by s 27 of the LRA 2002. (4) Due to proprietary estoppel/a constructive trust. S 2(5) LP(MP). E.g. Kinane v Alimamy Mackie-Conteh |
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LEGAL VS EQUITABLE MORTGAGE United Bank of Kuwait v Sahib |
You cannot create an informal mortgage (i.e. an EM where the formalities of an LM have not been followed) just by securing title deeds - the requirements of s 2 of the LP(MP) 1989 must be met. See (2) and (3) on the back of 8. |
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Relating to (1) on the back of 8. You can only mortgage what you own; if this is an equitable interest, then the mortgage will also be equitable. William Brandt v Dunlop Rubber (what happens when the loan on an EM is repaid): |
When the loan is repaid, the EI is retransferred to the mortgagor. |
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MORTGAGES BY ESTOPPEL
(1) Jennings v Rice (2) Taylor v Fashions Liverpool Victoria Trustees (3) Kinane v Alimamy Mackie-Conteh |
(1) The court has equitable jurisdiciton to grant the remedy appropriate to remove the unconscionability which triggered the estoppel. (2) If A promises B an interest in land, and B detrimentally relies on this, equity will take account of the promise and give effect to it. (3) An example of the court awarding an M by E. |
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Unconscionable terms The general test: Multiservice Bookbinding Ltd |
According to Lord Browne-Wilkinson, a term is unconscionable where: (i) The substantive term is objectionable/ improprietous; and (ii) There has been unconscionable conduct. There must be evidence of unequal bargaining power, such that one party has imposed a term on the other in a morally reprehensible way. |
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Unconscionable terms - more notes (1) City Land and Property (Holdings) v Dabran (2) Jones v Margaret (3) Nash v Paragon Finance |
(1) If the original interest rate is unfair, the court can set it aside and impose a new one. Also an example of (i) and (ii) being made out. (2) An unconscionable term is more than just a bad bargain per se. E.g. here, M had legal advice. (3) There is an implied contractual term not to set dishonest interest rates. Varying the interest rate can only be done for proper motives. |
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Undue influence An M can be struck down due to the undue influence of the mortgagee or a third party attributable to the M. The m'or may still have to pay off some of the M if they obtained a benefit from it. 2 types of UI: |
(1) 'Actual' Affirmative proof of UI est. by the facts of the case, e.g. threats to leave lover unless they agree. Key: M'or's *consent* must be freely given (Steeples v Lea) (2) 'Presumed' There is a close and trusting relationship between the M'or and the influencer, making it likely UI was exercised. |
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Presumed undue influence Barclay's Bank v O'Brien, RBS v Etridge N.b. the person exercising the UI must be doing so on behalf of the mortgagee for it to work against that mortgagee: CIBC v Pitt (husband did exercise PUI, but not as an agent of the bank). |
BB v O'B: two types of PUI. (i) the presumption exists independent of the facts (e.g. doctor/patient, parent/child - *not* husband/wife or bank/customer) (ii) the relationship is not one of these, but the facts make it so (e.g. lovers, employer/-ee, etc.) Etridge: for PUI cases, C must show the close and trusting rel with D, and then D must then explain the impugned transaction. I.e. PUI is a tool to shift the burden of proof - if the court can find 'manifest disadvantage' to C, then PUI is made out. |
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The Etridge requirements (undue influence) N.b. HSBC v Brown: if lenders do not comply with these they enter into the mortgage at their own risk. |
Lenders must... (1) Ask the potential m'or to name an independent solicitor to advise them. (2) Tell the m'or that their solicitor must explain the docs' nature, & that the solicitor's duty is to counter challenges to the validity of the docs. (3) Provide m'or's solicitor with the necessary financial info to properly advise the client. |
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Undue influence and solicitors: NatWest Bank v Amin |
If a solicitor gives inadequate advice, the lender is unaffected provided they do not know/were not ought to know that: (i) no advice was given, or (ii) the advice given was inadequate. (After all, the claimant could instead sue the solicitor). |
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Protection accorded to mortgagors: Cukarova Finance v Alfa Telecom (n.b. this is a PC case, so not formally binding but very authoritative. Unlikely that a different decision would be reached under the UK jurisdiction) |
The court has discretion to refuse the mortgagee's exercise of their remedies if... (i) it was done for a reason unconnected to the recovery of the debt; (ii) it was otherwise unconscionable. |
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Protections accorded to the mortgagor (1) Co-op Bank v Phillips (2) Davies v Direct Loans Ltd |
(1) Remedy proceedings must be brought in good faith. (E.g. bringing possession proceedings to put pressure on the m'or to pay the debt is allowed). (2) High interest rates are permissible if m'or has a bad credit history, and so the m'ee is taking a risk in agreeing to the M. |
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Remedies for default (legal Ms) |
These stem from the two limbs of Ms: contractual and proprietary. The remedy sought depends on the nature of the default/m'ee's needs. The remedies are cumulative and can be continually employed until the debt is recovered (i.e. debt + interest + cost). |
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Remedies for default (LMs) Contractual action for debt recovery (Normally L is happy to let the debt accrue and will not sue until B is in significant arrears - these remedies are nevertheless available). N.b. this is a personal remedy, and so if B is bankrupt it may be of no use. |
As soon as the legal date of redemption has passed, a personal action on the contract lies for the repayment of the debt (unless the m'ee has promised to defer the remedy pending the payment of instalments: Wilkinson v West Bromwich BS). The remedy: execution against B's property, making B bankrupt (Alliance and Leicester v Slayford). This is useful if the land alone will not cover the debt, as B's other assets can also be taken. |
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The power of sale Designed to recover the sum owed and thereby terminate the M; i.e. L can sell B's property. Mostly this is an express term; if not, it is implied under s 101(1)(i) of LPA 1925 unless there is contrary intent. |
Two conditions to fulfil: (1) The POS must arise: (i) when the legal date of redemption passes, or (ii) when one instalment is in arrears. (2) The POS must be exercisable under s 103 of the LPA 1925, i.e.: (i) L must serve notice requiring full payment of the sum, and B is 3 months in arrears since the notice was served. (ii) the interest was in arrears 2 months since notice was served. (iii) B has breached a provision of the M deed. |
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Consequences of the power of sale |
The proceeds of the sale are applied to repay the debt and associated liabilities (s 105 of LPA 1925). This includes: the costs and charges incurred by sale, and the sum + interest. Any surplus will go to B: Halifax BS v Thomas. B has no right to the land once it is purchased by another. |
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Regulating the POS |
As B suffers under the harshness of the POS remedy, there are righly common law and statutory limitations relating to the conduct of the sale. Generally, the reward given to B is compensation valued at the difference between the price obtained and the best price reasonably obtainable (Corbett v Halifax). |
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Regulating the POS Relating to when the POS is exercised |
If L sells the property before the POS arises, the purchaser gets only L's rights over the property, not B's. |
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Regulating the POS Cuckmere Brick Co v Mutual Finance |
If L sells after the POS arises but before it is exercisable, the purchaser takes the land free of the M unless B can show that the purchaser had notice of L's error/fault - in which case the sale would be set aside. |
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Regulating the POS The intervention of equity |
If the POS arises and is exercisable, B must rely on equity for protection. |
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Regulating the POS: equity Standard Chartered Bank v Walker |
L must obtain the best possible price reasonably attainable. Not hard to satisfy this; putting it up for auction counts (CBC v MF). If not put up at auction, the court will decide on a case-by-case basis. If L does not choose a method of doing this, they do not discharge their duty (e.g. Bishop v Blake). |
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Regulating the POS: equity Silven Propertis v RBS |
L is not obliged to take steps an owner may have taken to increase the value of the house, e.g. by making planning applications. |
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Regulating the POS: equity Meah v GE Money Home Finance |
Even if L does not take proper steps when conducting the sale, L is not liable to B where this does not lead to a lower price than was reasonably obtainable. |
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Regulating the POS: equity Parker-Tweedale v Dunbar |
The rule in Meah applies to third parties; e.g. third parties with an equitable interest in the land. (Rule reiterated below). Even if L does not take proper steps when conducting the sale, L is not liable to B where this does not lead to a lower price than was reasonably obtainable. |
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Regulating the POS: equity Co-op Bank v Phillips |
L is not a trustee of the POS. I.e. L exercises the POS for L and not for B, so L's motives are generally irrelevant. However, if no part of L's motive is to recover the debt, this *is* a breach of L's duty. |
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Regulating the POS Halifax v Corbett, Williams v Wellingborough Council |
L cannot sell the property to themself or their agents (e.g. employees). Sometimes in such a case the sale will be set aside - especially if the purchaser knew of the impropriety (as in Corbett v Halifax). |
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Normally Lwill seek possession before selling as it (i) minimises the risk of Bsabotaging the sale, and (ii) usually leads to a higher sale price. However, Lis not required to seek possession first, under... |
s101(1)(ii) of LPA 1925. If B is living in the mortgaged property, thenthey have some protection in s 36 of theAdministrative Justice Act 1970. This is only a remedy against L, not thepurchaser. Horsham Properties Ltd vBeech: held by Briggs J that this is not a breach of Bs’ ECHR rightsK |
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Judicial sales |
Where B's M is greater than the property's worth, B may want to sell it to crystallise B's immediate liability. B can apply for a judicially ordered sale under s 91 of LPA 1925. B will still be liable to sell the full sum. |
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The right to possession Possessionalone does not mean the M ends. However, it is often followed by sale, whichextinguishes the M. Why might L want possession? |
(i)Vacant properties sell for more. (ii) To prevent B sabotaging the sale. (iii)So L can manage the property to recover outstanding interest, e.g. by rentingit out. Normally, L is happy to leave B in possession as long as the M is beingobserved. |
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The right to possession
How Ls can exercise this right |
Assoon as the M is signed, L has the right to possession – even when B is not indefault: Four Maids v Dudley Marshall. A court order is not needed to exercise this right: Ropaigealach v Barclay’s Bank. L cannot use threats or force, andin many cases L will obtain a court order anyway to obviate any difficulties. |
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Consequences of L taking possession Commercial Lsusually do not seek possession, and residential Ls usually only take it as aprelude to sale. Why might Ls not want to take possession? |
Ls are held strictly accountable for any income generated by taking possession:White v City of London Brewery. Lwill be taken to receive not only the income they actually obtain, but also what they should have obtained had they managed the property to a highstandard; L will have to pay this difference. |
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Theright of possession: statutory restrictions – s 36 of the AJA 1970 (as modified by s 8 of the AJA 1973). |
IfB lives in the M’ed property, and is likely to be able to pay the M within areasonable period, L’s application for possession may be suspended oradjourned. ‘Dwelling-house’ depends on the state of the property, not whether Bactually lives there: RBS v Miller. |
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The right of possession: statutory restrictions. Flexibility under s 36 of the AJA 1970. The courts will take a case-by-case approach. |
Cheltenham andGloucester v Krausz: ‘Reasonable time’ may mean the remaining term of theM. Courts should consider many factors before exercising their discretion, e.g. (i) is B’s difficulty temporary? (ii) what are B’s other financial commitments?(iii) What is the reason for the arrears? (iv) how much of the M term is left? |
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The right of possession: statutory restrictions. Flexibility under s 8 the AJA 1973. |
‘Sumsdue’ means instalments missed, not the whole debt after the instalments weremissed. To suspend B’s possession, the court must be satisfied that:
(i) thesale will pay off the M in full (Cheltenhamand Gloucester v Krausz), or that (ii) B can at least pay a sum to court tocover the shortfall in payments (LBI HFv Stanford). |
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Theright of possession: limitations of the statutory restrictions |
(i) The restrictions only apply to dwellings. (ii)Ropaigealach: court has nojurisdiction if L took possession without a court order. (iii) Horsham: thecourt only has jurisdiction in relation to L, not a purchaser. (iv) Nojurisdiction where B has no prospect of paying off arrears/future instalments. |
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Theright of possession: other possible limitations. |
TheRoP is a right, not a remedy – the court can only refuse it in equity. Giventhe real-life gravity of an L taking possession, much judicial and academicthought has been dedicated to equitable remedies. N.b. ECHR arguments remain tobe seen (Protocol 1, Art 1; Art 8). |
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The right of possession: other possible limitations. Quennell v Maltby |
Denningdicta: Ls should not be able to takepossession without good reason. BUT: the approach contradicts the fact that theRoP is a pure right. Little subsequent judicial support for Denning’s position. |
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The right of possession: other possible limitations. MortgageServices Funding v Palk |
A courtcan suspend a possession application if B concurrently applies to sell theproperty under s 91 of LPA 1925. What if the proceeds of the sale do not cover the debt (as in Palk)? Held in Cheltenham and Gloucester v Krausz that this was allowed in Palk due to the novel facts of thecase; the Krausz approach isgenerally followed. |
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The right of possession: other possible limitations. AlbanyHome Loans v Massey |
If theM is in fact only binding on one of the Bs, L cannot be granted possessionagainst both. I.e. if L does not, for anyreason, have priority, they cannot take possession. |
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The right of possession: other possible limitations. Co-operativeBank v Phillips |
Lcannot make use of their rights/powers (e.g. the RoP) for any reason other thanenforcing payment. |
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Appointing a receiver (the capacity to do this is an express or implied term: s 101 of LPA 1925) Where theproperty is being mismanaged, an R may be appointed by L to make itvaluable/sellable. Usually done prior to selling the property. |
Thisavoids the dangers of Ls taking possession of the property themselves. R isconsidered an agent of B, not L: ChatsworthProperties v Effiom. So, (i) R owes B an equitable duty to manage theproperty properly, and (ii) L is not liable for R’s negligence in administeringthe property. |
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Foreclosure Rare - not granted anymore. What is this? |
Ifsuccessful, this extinguishes the equity of redemption and L takes the propertyfree of any rights B has over it. I.e. B’s estate is vested in L free of any Mterms: s 88 of LPA 1925. Arises afterthe legal date of redemption. |
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The process of foreclosure |
(i)L brings an action in court asking for foreclosure unless B pays within aspecific time. (ii) Id B does not repay, L is given a foreclosure ‘nisi’. Thisgives B 6 months (usually) to repay. (iii) If B fails, the foreclosure becomes‘absolute’ and B’s proprietary interest is extinguished. |
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Foreclosure Campbell v Holyland |
Exceptionally,a court may reopen an ‘absolute’ foreclosure to allow B to redeem the M at alater date. This is incredibly unlikely to happen where M has already sold theproperty to a purchaser with no notice of the previous M. |
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Statutory control of foreclosure |
Unders 91 of LPA 1925, courts can order asale in lieu of foreclosure. This is because of the harshness of foreclosures.This is very desirable to Bs: the funds would be distributed according to s 105 of LPA 1925, meaning B takes thesurplus profit. As a result, a foreclosure action almost never succeeds. |
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Rights of Ls under equitable Ms Similar but modified from thoseenjoyed under an LM. Selling an M'ed property. |
EquitableLs can sue for money in the same way (contract), and if the equitable M is madeby deed L has the PoS (e.g. Swift 1stv Colin). If no PoS exists, Ls an apply to the court for sale; the courthas discretion under s 91(2) of LPA 1925. |
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Rights of Ls under equitable Ms Similar but modified from those enjoyed under an LM. (RoPs, foreclosure, appointing a receiver) |
There is no RoP – possession must be expressly given in the Mcontract: s 90 of LPA 1925. Appointing a receiver: same as if the M is legal. S 37, Senior Courts Act 1981. Theequitable L has the same right of foreclosure as the legal L. |
