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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
      • 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
    • 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
    • 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
      • 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.
        • 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
      • 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
    • 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)
        • 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
      • 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
      • 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
      • 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
        • 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

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