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- Created by: Rachel
- Created on: 08-04-14 12:24
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- Mortgages
- a form of SECURITY INTEREST in LAND which guarantees the amount of a loan that was made so that the LENDER has confidence he will be able to recover his $$$
- rare that purchaser of property will have sufficient funds to buy property
- most people have to borrow funds but a lender will be unwlling to lend money w/o substantial security
- normally security used is REAL property e.g.: house - but can also be PERSONAL property e.g.: valuable piece of jewellery
- Borrower (mortgagor) grants the lender (mortgagee) a mortgage over his property
- EFFECT
- Lender has rights in the property which can be realised if the borrower defaults in repayment
- If borrower runs into debt and can't repay sum borrowed - lender can force the sale of property and recover the sum borrowed from proceeds of the sale
- Lender has rights in the property which can be realised if the borrower defaults in repayment
- EFFECT
- most people have to borrow funds but a lender will be unwlling to lend money w/o substantial security
- difference between a MORTGAGEE and a CHARGEE
- Mortgagee - gains rights in property
- Chargee - gets rights against the property
- a charge attaches to the land of the borrower and gives rights over the land but doesn't convey a legal/equitable interest in the mortgaged land to the chargee
- Mortgage - legal/equitable interest in land granted by the lender as a security for the payment of debt subject to the borrowers rights of redemption
- assurance that in the event of the borrower having no money to repay loan - there is an asset which allows you to claim rights over property and will allow you to realise the full amount you've owned
- rare that purchaser of property will have sufficient funds to buy property
- Mortgages in common law & equity
- COMMON LAW
- Mortgages were initially not recognised by common law
- Early mortgages took the form of
- leasees
- conveyances (lender became the owner of the property and borrower didn't recover rights in property until loan was repaid)
- Lender - became owner and had the right to sell the property, claim any income - rights would last until borrower repaid mortgage
- Borrower had chance to recover his property
- LEGAL RIGHT TO REDEEM
- if borrower was one day late - the land was lost and the borrower still was liable for debt
- failure to repay loan (e.g.: a delay) on date stipulated meant that the borrower lost all rights over property
- this is where there was only ONE DAY on which repayment could take place
- EQUITY
- Equity recognised the rights of the borrower to repay on a later date
- EQUITY OF REDEMPTION
- recognised b/c borrower felt aggrieved by common law rule esp. when it wasn't their fault they couldn't repay loan - e.g.:lender delib. made themselves unavailable
- gave borrower an equitable right to redeem
- allowed him to redeem after the contractual date for repayment had passed
- also allowed borrower the right to any income from property while the lender was in occupation
- this right was recognised as an interest in property which mean it could be
- sold
- leased
- left to someone by will
- EQUITY OF REDEMPTION
- Equity recognised the rights of the borrower to repay on a later date
- LEGAL RIGHT TO REDEEM
- Borrower had chance to recover his property
- Lender - became owner and had the right to sell the property, claim any income - rights would last until borrower repaid mortgage
- Early mortgages took the form of
- Mortgages were initially not recognised by common law
- COMMON LAW
- CREATION OF MORTGAGES
- BEFORE 1925
- legal mortgage was created by conveying the fee simple to the lender
- included a covenant for re-conveyance on redemption of mortgage
- mortgagee became the owner of the mortgaged property
- POST 1925
- Under s.85 of the LPA 1925 - 2 methods of creation of mortgages were recognised
- 1. A demise for a term of years absolute
- involved creating a long lease (e.g.: 3,000 years) which would cease when loan was repaid.
- lender didn't have legal estate conveyed to him and borrower was given the right to remain in the property and could take out further mrotgaes
- 2. a charge by deed expressed to be by way of legal mortgage
- s.87 LPA 1925
- there is no conveyance of any estate in the property to the lender
- lender gets a charge over the land giving him rights which attach to the property
- lender has right to enforce covenants and can create tenancies
- main way of creating mortgages
- 1. A demise for a term of years absolute
- Under s.85 of the LPA 1925 - 2 methods of creation of mortgages were recognised
- POST LAND REGISTRATION ACT 2002
- Under s23(1)a - only way a mortgage of registered land could be created is by registered charge
- mortgage will only take effect when its entered onto title of registered land
- CREATING EQUITABLE MORTGAGE
- 3 main ways
- 2. Deposit of the deeds
- 1. A contract to create the mortgage
- must satisfy s.2 LP(MA)Act 1989
- document must be in writing, signed by both parties, contain all terms.
- must satisfy s.2 LP(MA)Act 1989
- 3. Equitable interest
- borrower may only have equitable esate in property as they are an equitable owner behind a trust
- can only create a equitable mortgage as the mortgagor can only mortgage that which he owns
- mortgage is created by transferring the whole of the interest to the lender with a provision for re-transger of the interest once the debt has been paid
- must satisfy s.53(1)(c) of LPA 1925
- document must be in writing - if not - VOID
- must satisfy s.53(1)(c) of LPA 1925
- borrower may only have equitable esate in property as they are an equitable owner behind a trust
- EQUITABLE CHARGES
- completely informal way of creating a mortgage
- no formalities but there must be an intent to charge the property with a debt
- must be a contract to repay debt on specified date
- BEFORE 1925
- Rights of Mortgagee (lender)
- law protects the lender as people/insitution wouldn't lend money unless they felt fully protected
- 1. Right to sue on the covenant
- Arises once there is a default on the terms of the agreement
- Initial agreement - the mortgagor will repay the $$ lent as well as any interest
- If mortgagor fails to repay as agreed on date stipulated in contract - on breach of cov.
- Mortgagee can take action against mortgagor and court will order payment
- failure to pay allows mortgagee to execute the sum again the property of the mortgagor and can lead to bankruptcy proceedings
- Alliance & Leicester v Slayford (2001)
- failure to pay allows mortgagee to execute the sum again the property of the mortgagor and can lead to bankruptcy proceedings
- Personal action against mortgagor
- Mortgagee can recover any outstanding sums in this way if the value recovered from the sale of property is less tun the sum lent
- may be of little value if the borrower is in financial difficulties
- lender will want to look to property to ensure the money lent isn't lost
- other methods
- lender will want to look to property to ensure the money lent isn't lost
- Arises once there is a default on the terms of the agreement
- 2. Power of Sale
- Arises where the mortgage has been made by deed and the mortgage money has become due
- Can only arise if 3 conditions under s101 LPA 1925 are met
- once all 3 conditions are met - power of sale arises
- Power must also be exercisable
- occurs when any 3 requirements of s103 are arises
- where sale by lender takes place - purchaser gains the legal estate and is entitled to register his title
- duties of lender when exercising power of sale
- must take reasonable duty to take reasonable care to obtain a proper price for the mortgaged property
- doesn't have to wait until property market improves
- Cuckmere Brick Co v Mutual Finance Ltd 1971
- duties of lender when exercising power of sale
- 3. Appointment of a receiver
- often included in mortgage deed
- if not can be made under s101 LPA 1925
- Arises where the mortgage has been made by deed and the mortgage money has become due
- Receiver takes control of mortgaged property and sells it/manages it and uses the income to repay loan
- Medforth v Blake 2000
- often included in mortgage deed
- 4. Foreclosure
- only arises by order of the court after legal right to redeem has been lost
- effect - make the mortgagee owner of the property
- 2 types
- Foreclosure nisi
- mortgagor has period of time to repay mortgage and is so - mortgage - discharged
- Foreclosure absolute
- destroys mortgagors equity od redemption and transfers title to mortgagee
- Foreclosure nisi
- bring action under s91 (2) LPA 1925
- Campbell v Hoyland 1877
- 5. Right to possession
- automatically arises when mortgage is made
- possible mortgage itself may prevent right of possession
- mortgagor may agree to not take action to seek possession unless mortgagor defaults on repayment or other obligations
- mortgagor must rely on s98 of LPA 1935
- lender can take possession to let the property and has right to receive rents to satisfy sum owed
- alternatively is the first step before exercise of sale
- order for possession can be delayed where borrower believes he can obtain a higher price if he sells property himself
- Target Home Loans v Clothier 1994
- order for possession can be delayed where borrower believes he can obtain a higher price if he sells property himself
- alternatively is the first step before exercise of sale
- lender can take possession to let the property and has right to receive rents to satisfy sum owed
- mortgagor must rely on s98 of LPA 1935
- mortgagor may agree to not take action to seek possession unless mortgagor defaults on repayment or other obligations
- a form of SECURITY INTEREST in LAND which guarantees the amount of a loan that was made so that the LENDER has confidence he will be able to recover his $$$
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