Mortgages

1) the essence of a mortgage- 'a mortgage is a conveyance of land or an assignment of chattels as a security for the payment of a debt or the discharge of some other obligation for which it is given...'- Lindley in Santley v Wilde 1899. Mortgage is the security, not the money.

2) mortgagor is the borrower- the owner of the freehold or leasehold, the mortgagee is the lender- owner of a mortgage in the property. (normally bank or building society.)

It is a contractual relationship and a proprietary interest. This means it is against the world and can bind other people. 

3) Gray and Gray article- 'property is not a thing, but rather a relationship which one has with a thing. It is infintely more accurate, therefore to say that one has property in a thing than to declare that the thing is ones property.' 

4) some key concepts to familarise yourself with- 

Charge- proprietary interest created in land, charge property with a debt. Security for a debt (or performance of an obligation). A fund or property is 'charged' with the debt which means that the debt is payable out of it. A charge gives the creditor a right to recieve payment out of a specific

fund, or the proceeds of the sale of some specific property. All legal mortgages are now created by way of legal charge. The 'charge by way of legal mortgage' is by far the most important charge in the law of England and Wales. Need to enter the charge on the register. 

Law and equity- it is possible to have a legal or equitable mortgage. Legal mortgages are much more straightforward than equitable mortgages. Remember that in cases of co-ownership one could be a beneficial owner of an equitable interest without being a legal owner. Remember too that the point of equity was to mitigate the harshness of law, similary the equitable mortgage is typically created becasue of a want of formality in terms of creating a charge by way of legal mortgage- 'equity treats as done that which ought to have been done.' Better off with a legal one. If only have an equitable freehold you can only have an equitable mortgage. 

Formalities- creating a mortgage (legal or equitable) is a 'disposition of a proprietary interest.' Therefore they will normally need to be evidenced in writing. (LPA 1925). 

Proprietary estoppel- promise, reliance on that promise, and acting to ones detriment. By its nature there will be no evidence in writing. If this is found the applicant cannot be deneid the proprietary interest they were promised. 

Priority- the mortgage is typically used as a vehicle for the purchase of a freehold or long leasehold interest, typically we associate it with first time purchasers. Be careful as there are other reasons that one may wish to generate funds by way of mortgage. It is not uncommon to grant second or third mortgages over the same piece of land. Where this happens there may be issues relating to priority (ie which debt gets paid off first.) May have mortgages with different banks. Best security for a loan is a freehold estate. 

5) major complications- the registration gap (no longer a major issue since the LRA 2002 and even less of an issue with e-conveyancing.) 

6) Gray and Gray- which 'conceptual model' do mortgages fit best?

Property as fact- physical control- maybe present in the right to take possession? Really does not fit. Very little sense in which one 'stakes a claim' on the basis of empirically verifiable dominion over something (in the way that we look to the fact of exclusive possession in a leasehold interest for example). Only in a very limited sense does the mortgage fit this conceptual model, point to the fact of registration or written evidence of creation of an equitable mortgage, but even then this is more of an 'abstract right' by virtue of something created in writing. 

Property as a right? This is the normal model. Traditionally the mortgage fits into this conceptual model far better. Both parties have a general freedom to contract. The mortgagee (creditor) has a right to recieve payment by virtue of the mortgage and the right to various remedies in case of breach. The mortgagor has a right to pay off the debt ( a right to redeem the mortgage). All the while the mortgagor retains exactly the same rights as the owner of the relevant estate (freehold or leasehold). Two parties have competing sets of right over the land.

Property as a responsibility? 50% right and 50% responsibility. The thrust of the Gray and Gray article is that proprietary interests are increasingly being seen as broader social 'responsibilities' at least as much as they are seen as 'rights'. The specific instances that they discuss relate to various environmental issues, but there are at least two senses in which the mortgage fits this particular argument. 

i) undue influence- the mortgage is part contract, part proprietary interest. Like any contract it may be set aside due to viatating factors. An important issue in this respect is the possibility of undue influence in instances where a mortgage has been created in relation to co-ownership of a leasehold or freehold estate. Co-owners of such estates are frequently spouses, partners or close family members, which makes undue influence of one co-owner over another a real possibility. 

As we will see, the law has been very prescriptive in terms of the steps that mortgagees (lenders) must take in an effort to ensure that no undue influence has taken place. 

ii) changes in mortgage 'products' available since 2008- this is less of a legal issue and more of a socio economic phenomenon, but in practise lenders have viewed 'the mortgage' very differently since the global banking crisis that occured towards the end of last decade. Prior to this crisis it was not unusual for financial institutions to lend more than 100% of the propertys value. In addition certain institutions took on so called 'ninja mortgages' (where the mortgagor had no income and no job). These have disappeared. Banks and building societies have been forced to become far more responsible in terms of the people they lend to. Borrowers (would be mortgagors) now need to show that they are capable of paying off the debt within an agreed time period. It is also very unusal now for mortgages to be created without a deposit of at least 10% of purchase price. 

1) various types of 'mortgage product' based on type of repayment- repayment mortgage, interest only mortgage, endowment mortgage, current account mortgage, and or means by which the rate of interest payments are calculated- fixed, variable, tracker. These distinctions are not important in and of themselves for legal purposes. 

2) law- 'charge by way of legal mortgage'- this is a proprietary interest, not personal. This is the only type of legal mortgage that I need to worry about in the exam. 

The only way of creating a legal mortage over registered titles (freehold or leasehold) under s23(1)LRA 2002 (on its own or in combination with s52 LRA 2002 for 'charging the land with payment of money.) 

Must be created by deed (s87 LPA 1925), and must be registered (S25 and 27 LRA 2002). The rules for a deed are in the LP(MP)A 1988- writing, witnessed and delivered. 

Bank of Scotland v Walker. 

Nature of a 'charge' generally- normally security over a fund. Normally not a proprietary interest (personal.) In effect a 'charge by way of legal mortgage' is a proprietary interest. s87 LPA 1925. 

Takes priority over subsequent interests (not just mortgages) or dispositions eg a subsequent mortgage. 

3) equity- three types that matter nowadays- important priority issues. Need to remember that if all you have is an equitable interest you can only have an equitable mortgage. 

i) mortgaging an equitable interest- beneficial interest under a trust (common enough, very important) or an equitable leasehold interest (very rare/unlikely.) 

A disposition so must be in writing LPA 1925 s53(1)(c). 

ii) lack of formality- attempt to create a legal mortgage but a failure to create by deed or register. 

Deed created but failure to register s27 LRA 2002. Rules for a deed are in LP(MP)A 1989 s1. 

No deed but some 'written instrument'. s2 LP(MP)A 198- a contract for the creation of a mortgage but must be specifically enforceable- Walsh v Lonsdale- contract for sale. 

iii) estoppel- normal rules of proprietary estoppel: no need for any written document or specific enforceability. Promise, relied on, acted detrimentally. Must be unconscionable to deny- Kinane v Alimamy Mackie Conteh 2005- K had relied on promise and had been detimental to him. Created equitable mortgage by proprietary estoppel. 

iv) priority issues- dealing with registered land only.

Equitable mortgages can (and should) be protected by the entry of notice s29 and 30 LRA 2002, in this situation takes priority over later owners and later mortgages. It is not a legal charge but the priority is the same. 

Otherwise would have to try to make use of schedule 3 para 2 as an overriding interest (actual occupation seems unlikely). 

To take priority over an unregistered equitable mortgagem one must show valuable consideration (ie to be a later purchaser 'for value'.) Halifax v Curry Popeck. 

In a problem go down the options until you find one that fits the given situation. 

A) nature and meaning of redemption- 1) the 'right to redeem'= a right to redeem the mortgage on or after the relevant date. Anything that prevents this is void. 

'the equity of redemption'= sum total of all the mortgagors rights. 

Start date- commence paying back the loan. Term- length of time over which the loan will be paid back. Redemption date- the mortgagor is entitled to pay off the debt in its entirety from this date. Have a right to redeem early. This date is often about a year in. 

2) the nature of a mortgage- must be possible to redeem the mortgage- Jones v Morgan 2001. Courts will look at context, may be possible to postpone the redemption date in a commercial context. 

3) the nature of a mortgage- must not be a conveyance or an option to buy. Jones v Morgan 2001- key question of whether an 'option to purchase' is part of the same transaction. But (as with leases) courts look to the nature of the agreement, not the label attached to it by the parties ie just calling something a mortgage will not make it so- Warnborough v Garmite 2003. 

B) clogs, fetters and collateral advantages- i

1) in theory, nothing in the agreement should inhibit or interfere with the mortgagor's right to redeem- anything that does is a clog or a fetter. 

2) particularly important in siutations that involve some 'collateral advantage' to the mortgagee- rule appears to be that any such agreement that creates a collateral advantage will be valid providing that it continues for the duration of the mortgage only eg Noakes v Rice 1902. Not much recent case law on this point.

C) undue influnce- 

1) could be by the mortgagee directly or some third party in a way that taints the mortgagee (either as their agents or because the mortgagee has actual or constructive knowledge.) 

2) key issues surrounding what is required of mortgagees to ensure that mortgagors have recieved proper advice and/or freely made their decision to create a mortgage. Flood of litigation post Barclays Bank v O'Brien 1994. 8 cases. 

3) Royal Bank of Scotland v Etridge (no2) 2002- leading case in this area, it settled a number of key points. 'Actual undue influence'- wronged party must show that they have entered an agreement they would not have entered in normal circumstances and they have done so because they were unfairly persuaded. 

'Presumed undue influence'- certain relationships involve a level of trust and confidence so that undue influence can be presumed, but all this does is reverse the burden of proof ie it is for the alleged wrong doer to prove the proprietary of the action. ONLY applies to 'manifestly disadvantageous' transactions for the wronged party. (NB a party in such a relationship could still claim actual undue influence for a transaction that is not disadvantageous.) 

The Etridge Protocols- purpose is to help banks avoid liability, in fact may make instances of undue influence less likely. 

Mortgagee (bank) is 'put on inquiry' as to possible undue influence if person A mortgages their own property for person B REGARDLESS of the relationship between A and B (unless A is doing this as a professional service.) 'Put on inquiry' simply menas that the mortgagee must take steps to ensure that there is no undue influence- ie they have notice. If actually knew about undue influence then it will be set aside. 

Mortgagee is NOT 'put on inquiry' if the transaction is for the benefit of both parties (unless there is constructive or actual knowledge that this is a sham.) 

Post Etridge guidelines to mortgagees who are on notice (if effect places the onus on solicitors)- 

• i) get name of solicitor for potentially vulnerable party (can be allowed to be the same as husbands although it is preferably different) 
• ii) provide all necessary financial information to solicitor
• iii) inform solicitor of any concerns
• iv) get written confirmation of advice from solicitor.

Do these steps and any undue influence after that could not have reasonably been discovered- not constructive notice and so cant be set aside. 

Rules apply as well for misrepresentation. 

Virtually no cases on this anymore- this is a huge success as it has clarified the law. 

Mortgages are increasingly seen just as any other transaction. May add new terms. Cant put in unconscionable terms though. Only deal with when things go wrong. 

Mortgagee wants the same as the mortgagor ie for the mortgage to run its course, the mortgagor to redeem and the mortgagee to get back the principal interest and costs. Want to make money through the interest, they dont want the house. 

If the mortgagor defaults there are a number of remedies available to the mortgagee, these can be used individually or together. Main issues are the nature of the remedy, how/when a mortgagee should pursue it and the possibilities of the mortgagor resisting the remedy in some way. 

Right to redeem- rights offending against this are void. 

A) Contract- this is the best, most useful and practical. Problems with suing may be that they dont have enough money to make payments so limits application. 

1) can sue the mortgagor in case of default on the basis of the mortgage agreement (depending on terms, date of redemption or agreement to pay installments.) 

Normal contract rules apply apart from limitation period is longer (12 years from date of breach instead of 'normal' 6- Bradford and Bingley v Rashid 2006)

2) as a personal action against mortgagor, the usefulness of this remedy depends on the financial circumstances of the mortgagor. It is also important to consider the value of the debt relative to the value of the property. Mortgages are long things- may take a while to decide to sue. Want parties to work it out. 

3) very little that a mortgagor can do to avoid liability. Declare bankruptcy? Apply to court to force a sale? 

B) foreclosure- transfers legal ownership from mortgagor to mortgagee. 

1) in theory the most powerful remedy, basically means that the property is transferred to the mortgagee s88 LPA 1925. Typically notice periods for foreclosure are in the mortgage agreement. 

Application to court, granted a 'foreclosure nisi' with specified period within which the mortgagor can pay off the loan. No payment within that period leads to a 'foreclosure absolute.' 

2) prior to 1925 this was particularly useful if the value of the property is greater than the value of the debt. Still potentially useful where mortgagors have a number of debts. 

3) foreclosures are now rare in this jurisdiction. s91(2) LPA 1925 gives courts the discretion to order sale instead of foreclosure (which they almost always do). As a result it is typically better to simply apply for an order of sale or possession in the interests of business efficacy. 

Very very rare in practise. Might be priority issues. 

C) power of sale- very powerful. 

1) typically written into mortgage agreements. If made by deed (legal or equitable under s27) s101.1.i LPA 1925 creates this power automatically. Otherwise apply to the court under s91(2) LPA 1925. 

• Arises where there is a breach (redemption date or one instalment). Purchaser gets estate, freehold. Surplus after this goes to the mortgagor. If multiple mortgages then priority applies. 
• Exercisable when the various notice periods under s103 LPA 1925 have come and gone.

Dont learn the notice periods, just know to look at this section. Months or years after the breach.

• Sale before the power arises means purchaser gets the mortgage. Sale after the power arises means that the purchase gets the property free from the mortgage. 
• Normal rules of priority with regard to second and third mortgages (first in time). Any surplus after this goes to the mortgagor. 

2) difficult to find a purchaser without vacant possession, so normally the right of possession must be used in conjunction with this power. If the sale is exercisable the mortgagee can appoint a recieve under s101 of LPA 1925 to manage the property. Cant forcibly remove. May still be problems.

3) the mortgagee is under a duty of care to the mortgagor to obtain the 'best price reasonably obtainable'- easiest way to do this is by auction. Wilson v Halifax 2002. In addition the mortgagee cannot sell to himself or an agent or employee. Why wouldnt you do this? The property value may have fallen.

D) rights to possession- 

1) notionally possible at any time (even without default) unless the mortgage itself states otherwise. Can either physically take possession or seek a court order for possession. 

2) trying to physically take possession is undesirable (possible criminal law issues if one does so forcibly)- may be worth appointing a reciever. If the mortgagee applies for an order of possession this triggers a potential means of resisting on the part of the mortgagor. 

3) s36 of Administration of Justice Act 1970 and s8 Administration of Justice Act 1973. Court has a broad, often used, discretion to suspend or postpone a right to possession of a 'dwelling house' if it can be convinced that the mortgagor will be able to repay within a reasonable period despite the default. 

4) a number of attempts have been made to limit the right to possession. Really only two have judicial recognition. Fairly obviously if we have a finding of undue influence so that the mortgage is not binding on all 'mortgagors', the unduly influenced mortgagor will not be bound by a right to possession.

Under s91 LPA 1925 the mortgagor can apply to the court to order a sale. In such circumstances the right to possession may be suspended.