Mortgages

MORTGAGES

A mortgage is security for a loan of money. A mortgage is capable of being legal: s.1 Law of Property Act 1925 (LPA). To create a legal mortgage is must be made by charge by way of deed under s.85(1) LPA 1925 and the charge must be registered (s.27 Land Registration Act (LRA) 2002). A mortgage which fails to satisfy the requirements/ formalities to take effect as a legal interest, will take effect in equity provided there is a valid pre-conferment contract (Parker v Taswell and s.53 LPA 1925) which is a written document signed by the person confering it (s.2 Law of Property (Miscellaneous Provisions) Act 1989). 

A mortgagee is the person who provides the loan of money, and the mortgagor is the person who provides the security for the loan. 

A mortgagee has the right to take possession of the property 'as soon as the ink is dry' on the mortgage agreement under the common law: Four Maids v Dudley Marshall. However, this seems unfair because the mortgagor could have done nothing wrong, but lose their security, therefore this right is qualified in two ways.

The doctrine in Quenelle v Maltby states that a mortgagee should only take possesssion where there is a bona fide reason (e.g. only in good faith - missed payment) (Lord Denning). However the validity of this doctrine is questionnable, Martin Dixon states that it has not been used in some subsequent cases, and therefore its effectiveness is in dispute.

The second qualification is via s.36 Administration of Justice Act (AJA) 1970 (as amended by the AJA 1973) which allows the court to postpone/ adjourn possession proceedings where it can be shown that the mortgagor can make the payments in a 'reasonable period'. In Cheltenham & Gloucestershire Building Society v Norgan the court presumed that this 'reasonable period' was the rest of the duration of the mortgage. Thus, if the court can find that the mortgagor would be able to make these payments if they were respread across the rest of the duration of the mortgage, they can prevent possession. However, there are two qualifications to the application of s.36. Firstly, it only applies where there property concerned is a dwelling house'. Secondly, the court only have the jurisdiction to make such orders where the mortgagee has applied to the court for an order for possession. There is no requirement for an order for possession, because the mortgagee is interested party in the property and thus has ownership rights. So, in Ropaigeach v Barclays Bank the court could not intervene as the mortgagee had taken 'peaceful possession' whilst the occupier was not there. However, in most instances the mortgagee will apply for a possession order to prevent the possibility of any criminal liability in entering a house in occupation.

In determining whether the mortgagor can make these payments in a reasonable period, the court may look to the terms of the mortgage agreement and see whether…