Mortgages articles/notes

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Dixon 'Priorities under LRA 2002'

  • In Halifax v Curry Popek court had an opportunity to consider the impact of the rules concerning priority of proprietary interests in LRA. Rules in s29 and 28. Normally straight forward as mortgage registered as a legal charge and priority flows from registration date. When it was fraudulent it wasnt properly registered. There was estoppel in Halifax's favour as it had been led to believe that they would acquire a legal charge and had acted on belief of that. Equivialant to an equitable charge. The estoppel claim provided an interest and so priority became central.
  • Bungalow was sold and so priorites attached to proceeds of sale. Halifax had equitable charge by estoppel and Bank of Scotland had equitable charge by charging order. Because title was transferred s28 and 29 of LRA come in. S28 gives basic priority rules. Transfer wasnt made for good consideration and was fraudulent. Halifax's unregistered equitable property riht retained its priority and had first call for proceeds of sale. S29 states a duly registered transferee for valuable consideration takes the land subject only to entries on the register or unregistered interests which override. The transferee was not a purchaser, s28 applied and between the equitable charges the first in time prevailed. 
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Smith 'Property Law'

  • Lenders rights- right to possession is important when the lender wants to use the power to sell. Lender can apply to court to terminate the borrowers equitable right to redeem, called foreclosure. Rare today as there are extensive safeguards. Most likely to use power of sale. Implied by statute. 
  • Reforming the structure and terminology- pure security right, not property. Nearly all mortgages created by legal interest. The repayment mortgage provides for constant monthly payment over an agreed period, which may be up to 40 years. Payments will exceed interest on the loan, so capital is reduced to zero. Interest only mortgage- can be linked with any source of repayment including ISA investments. 
  • Significance- growth in home ownership has been dependent on mortgages. Equitable mortgages come from making a mortgage for the future of lack of formalities. In the future compulsory equitable conveyancing will require entry on the register for there to be any form of mortgage or charge. 
  • Under Etridge the HoL said the wife can use the husbands solicitor despite some dangers. 
  • Relationship constituted by the mortgage- right to redeem cannot be excluded. A mortgage is sometimes made irredeemable for a considerable period of time to render covenants in the mortgage enforceable for that period. Commonly applies to solus ties. 
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Smith 'Property Law'

  • ii) clogs and fetters on the right to redeem- right to redeem is inviolable. Conflict between a mortgage can be no more than a security and that once paid off the mortgagee cannot enforce obligations. On the other hand businessmen should be able to negotiate and have them enforced in court. 
  • iii) restraint of trade- a term of a contract will be unenforcable if it unreasonably restricts trade. Unreasonableness may be between parties or public interest. Esso Petroleum v Harpers Garage. Regard to solus ties mainly. Doesnt apply where theres no existing right to trade. 
  • iv) unfair terms- unconscionable ones will be struck down. Equity willing to interfere. Knightsbridge Estates v Byrne said must be oppressive and unconscionable. Jones v Morgan said it was insufficient that a bargain was 'unwise or improvident.' Variable interest rates- sometimes related to external rates or variable by reference to the lenders standard rates. Paragon Finance v Nash said there was an implied term preventing its use 'dishonestly, for an improper purpose, capriciously or arbitrarily'. Does not preclude unreasonable interest rate. Just means the power must be 'in a way that no reasonable lender, acting reasonably will do.' New unfairness test in Consumer Credit Act 2006. Case must be considered on full facts. FIND CASE WITH UNREASONABLE RATE ON IT. Where there is no sharp practise by the lender and the borrower is aware of what is being agreed then the courts are reluctant to step in.
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Smith 'Property Law'

  • Rights and remedies of the mortgagee- i) foreclosure- end of the right to redeem. Inapplicable until after the legal date for redemption has passed. Only if no payment is made will forclosure be absolute. Drastic as mortgagee now owns property and is of little use and almost unheard of today. Court has jurisdiction under LPA s91 to order sale. Mortgagee will get the money it needs and give the rest to the mortgagor. Mortgagor can apply to the court at any time to have foreclosure put aside. Even purchasers from the mortgagee can be ordered to return the land to the mortgagor. Purchasers title is safe if registered though. Mortgagee cannot have the debt and the property. The Law Commission has recommended its abolition. 
  • Possession- more important than foreclosure. Right to possession is exercisable immediately. If the property is leased the mortgagor will get the rent. The mortgagee must allow the mortgagor to redeem if possession is sought or taken. Mortgagor is allowed to redeem befroe the legal date for redemption has passed. May be possible for the court to imply a right for the mortgagor to possess the land. It is exceptional for the mortgagee to seek possession before default and sale is always the mortgagees ultimate objective. Possession is nearly always sought as a prelude to selling the property. Cant sell with someone in it. Possession sought by caught proceedings. Pre Action Protocol for Possession claims set out the steps they should take. 
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Smith 'Property Law'

  • jurisdiction to prevent possession- sole ground is to permit redemption. The time allowed for a mortgagor to redeem is likely to be no more than 2/3 months. Jurisdiction is limited to dwelling houses. S8 applies to all mortgages apart from those securing overdrafts. Whether s36 or s8 applies is based on ability to pay arrears. Legislation assumes that possession will not be sought if theres no arrears or if they have been paid. Courts are almost always willing to allow postponement if it can be shown that there is a reasonable prospect of it being paid. In Cheltenham and Gloucester v Norgan postponement was accepted until the end of the mortgage. Seems generous but there will be no mercy for future defaults. Capital repayment- mortgagor may wish to sell the property to pay off both arrears and loan. Will sometimes give up to a year to sell the house. Duties of a mortgagee in possession- must account for profits made and must get the best rent they can. 
  • Sale- can sell the full estate despite only having legal charge. Doesnt require court approval. LPA 1925 s101 (1)(i) mortgages by deed and registered charges confers the power while the mortgage money has become due. May have express provisions. S103 states that the power can not be exercised unless one of these conditions is satisfied- 1) three months notice requiring payment has been given 2) interest is in arrears for two months 3) some other breach has occured. 
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Smith 'Property Law'

  • Purchaser is protected under s104(2) saying that after conveyance purchaser is protected from irregularities and is under no obligation to investigate whether the sale is authorised. Section cannot be used for fraud. Can the mortgagor prevent sale? Uncommon to be challenged directly. Normally fights on possession. Mortgagor is vitally affected by sale price. Mortgagee should try to get good price and true market value. Must be advertised properly. Silven Properties v Royal Bank of Scotland said that a mortgagee can sell immediately without taking any premarketing steps. They are liable for the carelessness of an agent. They can choose when to sell, but reasonable time needs to be allowed for advertising. They cannot sell to themselves. Need to give any money over the debt to the mortgagor. 
  • Courts jurisdiction to order sale- can order under LPA s91(2) if either party seeks sale in an action for foreclosure, redemption and sale. Tends to be used for exceptional circumstances. 
  • Power to appoint a reciever arises and becomes exercisable at the same situations of power of sale. Will be appointed where there is rental income from tenants. Receiver gets income, pay it to the mortgagee to cover interest and capital. Used a substitute for possession. LPA s109(2) deems the reciever to be the agent of the mortgagor meaning the mortgagee is not liable for breaches of duty. 
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