Land Law Mortgages

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Mortgage

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an interest in property granted to a lender as security for a loan

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Mortgagor

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the borrower – the person who grants the mortgage

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Mortgagee

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the lender – the person who is granted the mortgage as security for the debt

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The legal redemption date

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the date when the money borrowed is repayable to the lender.

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The equitable right to redeem

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a mortgagor has a right to repay the loan and any interest due on/after the redemption date.

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The equity of redemption

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the rights which the mortgagor retains in the property. This has come to mean the difference in value between the property and the debt.

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legal Mortgage

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created by deed.

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Unregistered land
The Law of Property Act 1925 provides two ways of creating a mortgage.

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1 Mortgage by long lease ("mortgage by demise") subject to a proviso for cesser on redemption

LPA s.85(2) - when debt is repaid lease terminates.

2 "Charge by way of legal mortgage"

For the basic format of such a mortgage see LPA 1925, Fourth Schedule Form One.
Now the most common form of mortgage.

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Registered land

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S 23(1) Land Registration Act 2002 only permits the creation of a legal mortgage by registered charge (must be a deed).

S 27(2)(f) LRA 2002 – mortgage must be registered to be legal

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The Remedies of Legal Mortgagees

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1 Action in contract on Mortgagors covenant to repay
2.Taking Possession
3.Sale
4.Appointing a Receiver
5.Foreclosure

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Action in contract on Mortgagor’s covenant to repay

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Usually used where there is negative equity. Under s20 Limitation Act 1980 the limitation period is 6 years for claims relating to interest and 12 years relating to capital.

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Mortgagees taking possession

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A mortgagee has the right to take possession immediately the mortgage is made.

Four Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317

Harman J:

“the mortgagee may go into possession before the ink is dry on the mortgage”

The usual reason for taking possession is in order to sell with vacant possession.

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Ropaigealach v Barclays Bank Plc [2000]QB 263

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There is no need to go to court to obtain possession

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Administration of Justice Act 1970 section 36 (part 4)

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the court has a wide discretion to adjourn possession proceedings, or to make a possession order but suspend its operation if it appears to the court that it is likely the mortgagor will be able to repay within a "reasonable period", "any sums due under the mortgage"

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Administration of Justice Act 1973 section 8

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where the mortgage is an instalment mortgage. In such situations an adjournment of possession proceedings or a suspended possession order can be granted if it is likely that within a reasonable period the mortgagor will be able to pay off arrears of instalments and meet any further instalments which fall due within that reasonable period.

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Cheltenham and Gloucester BS v Norgan

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Court of Appeal held that a “reasonable period” could be the whole term of the mortgage.

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Palk v Mortgage Services Funding plc

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negative equity-Mortgagee wanted to keep house and let it out until market improved. The Court of Appeal granted the Palks an order allowing them to sell under s 91(2) LPA 1925.

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Cheltenham and Gloucester v Krausz

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Where there is negative equity and there are no other funds available to make up the shortfall the Court had no power under the Administration of Justice Acts to suspend a possession order so that the mortgagor can make an application for sale under s 91.

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White v City of London Brewery

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if a mortgagee takes possession on a long-term basis, the mortgagee must account, must manage the property to get the maximum income obtainable by reasonable means.

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The Mortgagee's Statutory Power of Sale

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LPA 1925 s.101(1) and s.103

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When does the power arise?

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(a)mortgage is made by deed and
(b)mortgage debt is due i.e. legal redemption date has passed or instalments in arrears and
(c)mortgage deed does not exclude power of sale.

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When does the power become exercisable?

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(1)Notice has been served on the mortgagor requiring repayment and three months have elapsed without the mortgagor repaying the whole debt; OR
(2)Interest is at least two months in arrears: OR
(3)There has been a breach of a term of the mortgage other than one relating to repayment of capital and interest.

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Cuckmere Brick Co v Mutual Finance Co

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Mortgagee can decide when to sell-only needs to take into account his own interests
Can sell by auction or private treaty

Must get the best price reasonably obtainable/the true market value

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Silven Properties v Royal Bank of Scotland

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The mortgagee is not entitled to act in a way which unfairly prejudices the mortgagor by selling hastily at a knock down price…he must take proper care whether by fairly and properly exposing the property to the market or otherwise to obtain the best price reasonably obtainable at the date of the sale

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A mortgagee who fails to obtain the true market value will have to account for the difference.

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The onus of proving this is on the mortgagor.

A mortgagee cannot sell to himself, or his nominee or to his agent.

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The effect of a sale

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The mortgagor's Equity of Redemption is destroyed as soon as the contract of sale is made.

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Destination of proceeds of sale –s 105 LPA 1925

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(1) In paying off the total debt owed to any mortgagee earlier in priority who permitted the property to be sold free from his mortgage.
(2) In discharging any costs of sale/attempted sale
(3) In discharging the total debt owed to himself.
(4) The balance to be paid to the mortgagee next in order of priority, or if none, to the mortgagor.

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Power to Appoint a Receiver

S109 LPA 1925

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Receiver takes control, manages the property and collects income.

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Downsview v First City Corporation

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mortgagee can choose whoever he thinks fit as a receiver

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Medforth v Blake

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Power to appoint receiver must be exercised in good faith but mortgagee owes no duty to be careful in selecting receiver appointed.

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Foreclosure

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Only available by court procedure after the legal redemption date has passed.

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A foreclosure order is made in two stages.

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1.Foreclosure order nisi – directs preparation of accounts and gives time for money to be repaid

2.Foreclosure order absolute – vests property in mortgagee.

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Judicial sale in foreclosure proceedings

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Mortgagor can apply to the court for an order for judicial sale instead of foreclosure under s91(2) Law of Property Act 1925.

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Foreclosure and dwelling houses

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if the mortgaged property is or includes a dwelling house then the
Administration of Justice Acts apply (see power of sale).

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first national bank v syed

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when judging the mortgagors ability to pay back, speculative plans are dealt with strictly, eg plans to get a job

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Martinson

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mortgagee cannot buy the property himself unless directed by a court

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Tse Kwok Lam

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Mortgagee can in good faith sell to an associatoed person or a company in which he has a substantial shareholding

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Mercantile

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mortgagor may, if not under undue influence, agree to a sale below market price

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Re Farnol

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a court order is required for foreclosure

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William

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forclosure cannot be sought before obligation to repay has been broken

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Campbell

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the court can reopen the situation after the foreclosure order and allow the mortgagor to redeem