Mortgages

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What is a mortgage?

  • A grant of an interest in or rights over property as security for the repayment of a loan or the discharge of some other obligation
  • Mortgagor - the person who borrows money and grants the mortgage
  • Mortgagee - the person who lends the money and to whom the mortgage is granted
  • Secured loan is the safest way of lending, it is advantageous if the borrower becomes insolvent
  • A secured loender has 1st call on property over which it is a security - so has a good chance of being fully repaid
  • It is common for business to give security for business loans over their homes
  • It is usually repayable over 25 years, can be less
  • Under an obligation to make periodic payments, partly interest and partly repayment
  • Interest only mortgage - monthly payments of interest only, at the end of term, find the money to pay it all off. Usually done by a borrower making an investment alongside.
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Creation of a mortgage or charge

Unregistered land - can be mortgaged in 2 ways (** 85-7 LPA 1925):

  • A demise for a term of years absoloute subject to a proviso for ce**er on redemption
  • A charge by deed expre**ed to be by way of legal mortgage

Registered land - can be mortgaged by means of a charge (s 23 LRA 2002)

A mortgage ceases automatically on repayment of the loan

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Creation of legal mortgages and registered charges

Deed - s 52 LPA 1925

Registered Land - complete by registration s 27 LRA 2002

Unregistered Land - may trigger first registration of the fee simple or leasehold s4-7 LRA 2002

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Creation of equitable mortgages

Of an equitable interest by signed writing - s 53(1)(c) LPA

Speicifically enforeceable contract for a mortgage

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Requirements to establish misrepresentation or und

  • The bank sought to enforce the mortgage when the debt reached £154,000. W argued that because of H's misrepresentation the mortgage was only binding on her to the extent of £60,000. (Barclays Bank Plc v O'Brien)
  • There is a presumption of undue influence where there is a relationship of trust and confidence and a transaction calling for an explanation (Royal Bank of Scotland v Etridge No 2)

Lord Nicholls held that there is a distinction between:

  • Cases of actual coercion
  • Cases where the undue infleuce arises from a particular relationship

- cases where there is a relationship of trust and confidence. If it is established there has been a transaction which calls for some explanation, then the burden shifts to the person seeking to uphold the transaction to show that there was no undue influence

- certain types of relationship where one party has acquired influence over another who is vulnerable and dependent and by whom substantial gifts are not normally to be expected. In these cases, there is a presumption of undue influence by the stronger party over the weaker.

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When will a mortgageebe affected by the misreprese

Barclays Bank Plc v O'Brien

  • where that other was acting as the mortgagee's agent
  • where the mortgagee has actual or constructive notice of that other's conduct

The mortgagee will be taken to have constructive notice where he has been 'put on enquiry' (Royal Bank of Scotland Plc v Etridge No 2), where he knows that:

  • the provision of security is for another's debts
  • the relationship between the mortgagor and the debtor is non-commercial

CIBC Mortgages Plc v Pitt

  • The transaction on its face did not seem to the disadvantage of the wife, because the stated purpose was to purchase a holiday home. The bank was not put on enquiry and therefore could not be fixed with constructive notice.
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What can a mortgagee do to avoid the transaction b

  • A bank can take reasonable steps to satisfy itself that the wife has had brought home to her, in a meaningul way, the practical implications of the proposed transaction (Royal Bank v Etridge No 2)
  • Requires an explanation of the nature and effect of the proposed transaction and its risks (and advice to take independent legal advice) by the mortgagee (Barclays v O'Brien)
  • Or a solicitor - with confirmation in writing that such advice was given (Royal Bank v Etridge No 2)
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Effect of undue influence/misrepresentation

  • The whole mortgage was set aside (TSB v Camfield)
  • It was set aside on the condition that the claimant accounted to the mortgagee for the benefit which she had from it (Dunbar Bank v Nadeem)

If a joint legal mortgage is set aside in relation to one of the mortgagors it will still be an effective mortgage of the other's equitable interest

  • s 63(1) LPA 1925
  • s 14 TOLATA 1996

First National Bank Plc v Achampong

  • Although the charge was ineffective against the wife because of undue influence, it did create an equitable charge over the husband's interest, which led to the bank obtaining an order for sale to get at his interest

Undue influence can affect a mortgage in 2 ways:

  • where the mortgagee has exercised undue influence to induce the mortgagor to enter into the mortgage (National Westminster Bank v Morgan)
  • where the mortgagee has not exercised undue influence but it is claimed that a 3rd party has and this affects the mortgaggee - MOST LIKELY SCENARIO
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Rights of the mortgagor

  • The mortgagor has the right to get his property back on repayment of the loan  unencumbered by any rights of the mortgagee
  • Contractual or legal right to redeem - see terms of mortgage
  • Equitable right to redeem unil the court grants an order of foreclosure
  • The 'equity of redemption' - all the equitable rights of the mortgagor in the mortgaged land
  • Anything in the mortgage which purports to exclude the right to redeem will be void

Fairclough v Swan Brewery

  • The mortgage purported to postpone redemption until 6 weeks before the expiration of the lease. The mortgagor sought to redeem early and the court upheld the right to do so.

Had the posponement been valid, the mortgagor would have recovered an estate which was nearly valueless and very different from the property mortgaged. So in the case of leases, postponement of the contractual date for redemption is likely to be rather more objectionable, even where the mortgage is a commercial bargain.

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Priority between contributors to the purchase pric

  • Imputed consent on the part of the contributor to the mortgagee taking priority
  • Where a contributor to the purchase price knows that part of the purchase price is to be raised by means of a mortgage loan, then that contributor will be taken to have agreed that the mortgagee gets priority (Bristol and West Building Society v Henning)
  • The mother knoew that her son could  not pay the purchase price. That knowledge was sufficient to give rise to imputed consent. Can infer that she knew he would raise the money by way of a mortgage loan (Abbey National v Cann)
  • Where the purchase is dependent on the mortgage loan, the purchase and the mortgage are indissolubly bound together such the purchaser never acquires anything but the equity of redemption and any contributor can only acquire an interest in that (Abbey National Building Society v Cann)
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Subsequent Mortgages

  • Depends on issues of overreaching, notice, registration and actual occupation
  • A remortgage taks the priority of the original mortgage to the extent of the original mortgage provided it is on no less favourable terms (Equity and Law Home Loans v Prestidge)
  • The court was prepared to impute the woman's consent to the new mortgage, as she had consented to the original mortgage (Equity v Prestidge)
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Rights and remedies of the mortgagee

  • In exercising these remedies the mortgagee can protect his own interest first but is under a duty to act fairly towards the mortgagor (Palk v Mortgage Services Funding Plc)
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Right of possession

  • Allows the mortgagee to take possession (the mortgage deed allows this at any time during the mortgage) and to sell the property. Any surplus belongs to the mortgagor
  • A legal mortgagee 'may go into possession before the ink is dry on the mortgage unless there is something in the contract, express or by implication, whereby he has contracted himself out of that right' (Four-Maids Ltd v Dudley Marshall)

Duties of mortgagee

  • To account for any income and profits he does and could have received (White v City of London Brewery Co)
  • To take reasonable care as to the physical state of the property (Palk v Mortgage Services Funding Plc)
  • Possession must be sought bona fide and reasonably to protect the mortgagee's rights as mortgagee (Quennell v Maltby)
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Rights of possession 2

  • Powers to adjourn possession proceedings or postpone or delay the giving of possession under the inherent jurisdiction of the High Court
  • Short time to pay off the whole debt - if the mortgagor has to pay 'any sums due' in such a case this would include the whole advance and few mortgagors could comply with this requirement (Birmingham Citizen's Permanent Building v Caunt)
  • Not available in a case of negative equity -
    the powers should not be used unless it is clear that the result will be that the mortgage will be prepaid in full. Where the mortgagor is still faced by a debt greater than the value of the property, the mortgagee will still be entitled to immediate possession and sale. (Chelternham and Gloucester Plc v Krausz)
  • Powers to adjourn possession proceedings or postpone or delay the giving of possession under s 36 of AJA 1970 - where the mortgagee cannot obtain vacat possession from the mortgagor by negotiation and it is still occupied, then the mortgagee must seek possession by a court order. 
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Postponement to pay off arrears

  • In any case where 'any sums due' means the entire loan, then a reasonable period will be the full mortgage term (First Middlesborough Trading v Cunningham)
  • In assessing what was a reasonable period, it would be appropriate for a court to take as a starting point, the whole of the outstanding term of the mortgage (Chelternahm and Gloucester v Norgan)
  • Postponing possession must be for a specific period, cannot be postponed indefiniteley (Royal Trust of Canada v Markham)
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Postponement for the mortgagor to sell the propert

  • 'Any sums due' where the mortgagor wants to sell the property, means the whole mortgage debt (Royal Trust Company of Canada v Markham)
  • Normally, an application to the court for possession will have to be made. This will give the mortgagor extra time to pay and the court has inherent jurisdiction to postpone possession, although this power will be exercised sparingly (Cheltenham and Gloucester Plc v Krausz)

Reasonable period

  • The question of what is a 'reasonable period' to allow the mortgagor is a matter which is determined in the light of the circumstances of each case (National and Provincial BS v Lloyd)
  • An order for posession may be delayed for a time if the court believes that the mortgagor may obtain a higher price if he sells himself (Target Home Loans v Clothier)
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Postponement for the mortgagor to sell the propert

Proceedings necessary

  • If peaceable re-entry is possible without resort to the court this is perfectly acceptable, but not that the case proceeded on the assumption that the bank had taken possession peacefully but without those facts ever being established. (Ropaigealach v Barclays Bank Plc)
  • Mortgagees appointed a receiver, who sold the property relying on a cause in the mortgage document but without obtaining possession. The purchaser then sought possession against the mortgagor, claiming that the mortgagor's rights had been overriden by the sale. (Horsham Properties Group v Clark)
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The remedy of sale

  • Existence of a power of sale - s 101 LPA 1925
  • Power of sale exercisable - s 103 LPA 1925
  • Extent of mortgagee's power - s 52 LRA 2002
  • Protection of purchasers - s 52 LRA 2002
  • Dealing with the proceeds of sale - S 54 LRA 2002
  • The mortgagee owes the mortgagor a duty to act in good faith and to take reasonable care to obgtain the true market value for the property at the time of sale
  • Had the planning permission been advertised, the land might have attracted more interest and a higher price (Cuckmere Brick Co v Mutual Finance Ltd)
  • Sale to an assosciated person: duty to act in good faith and take reasonable precautions to obtain the best price reasonably obtainable at the time (Tse Kwong Lam v Wong Chit Sen)
  • The only bidder at the auction was the mortgagee's wife bidding on behalf of the company. The company bought to the property at the reserve price of which it knew and which it had decided to pay. The mortgagee provided all the funds for the purchase. (Tse Kwong Lam v Wong Chit Sen)
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Sale by the mortgagor

  • Redeeming the mortgage
  • Consent of mortgage
  • Court under s 91(2) LPA 1925
  • Where sale was preferable in the mortgagor's interests, a sale would be ordered instead. In the conduct of the sale, the mortgagee must not unduly rush the transaction or sell at a low price that will simply cover the mortgage debt. There is a duty to take reasonable care as to the physical state of the property. (Palk v Mortgage Services Funding Plc)
  • Mortgagor was not in default, but would not be able to fully redeem the mortgage on sale. She wished to move for social reasons, whereas the mortgagee wished to wait for a rise in property values. The court seems willing to exercise the powers under s 91 in a case of negative equity. (Polonski v Lloyds Bank Mortgages Ltd)
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Other remedies

Remedy of foreclosure

  • Puts an end to all the rights of the mortgagor - a court order is necessary
  • It is rarely granted. It vests the property in the mortgagee and the mortgagor has no rights to any surplus

Remedy of appointing a receiver

  • This power is available in the same circumstances and to the same mortgagees as is the power of sale - s 101 LPA 2002
  • The receiver is regarded as the agent of the mortgagor
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Successorts in Title

Of the mortgagor

Legal mortgage

Unregistered land - unless the title deeds are deposited with the mortgagee, needs registration as a C(i) land charge

Registered charge - registered charge

Equitable mortgage

Unregistered land - unless the title deeds are deposited with the mortgagee, needs registration as a C(iii) land charge

Registered land - notice

Of the mortgagee

The benefit of the mortgage can be assied by deed (legal) or in writing (equitable)

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