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Mortgages: Overview

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Mortgages: Overview

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  • mortgage or charge on land: real security for loan of money / borrower: mortgagor / lender: mortgagee
  • legal right to redeem: Bs' right to repay loan / date specified in mortgage (legal date for redemption) / B strict legal right to redeem loan on that date
  • traditionally legal date for redemption set at 6 months / mortgage must not be irredeemable / redemption may be delayed if not oppressive or unconscionable Knightsbridge Estates Trust v Byrne
  • equitable right to redeem: once legal date for redemption (specified in mortgage deed) passed / equity gives B right to redeem loan at any time afterwards
  • B only exercise if equitable rules are satisfied / comes into existence once mortgage created / Bs' rights in mortgaged property after creation of mortgage / on creation mortgage: L become legal owners land subject to equitable interest of B (equity of redemption) / equity intervene if right to redeem illusory Fairclough v Swan Brewery
  • mortgage created correctly can take effect as legal mortgage LPA 1925 s.1(2)(c)

Legal mortgages

  • LPA 1925 s.85 / 2 methods create legal mortgage / demise or legal charge
  • demise: Bs grant Ls long legal lease / clause providing lease ends when Bs repay loan / Bs keep fee simple / mortgage is incumbrance over fee simple / mortgage still provides Bsnotionally repay loan & after date B equitable right to redeem
  • legal mortgage or charge: by deed / state charge is made by way of legal mortgage / not convey any estate in land to Ls
  • LRA 2002 demise no longer possible / B can charge registered title with: charge expressed to be by way of legal mortgage or by charging estate with payment of sum of money / s.27(2)(f): legal mortgage must be completed by substantive registration to bind
  • Land Registry place notice in charges register / preserve priority of mortgage / creates charge by deed by way of
    legal mortgage / over registered title
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Mortgages: Overview

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Lenders' rights & remedies: sale

  • Bs mortgage land to Ls security for loan / law distinguishes: Ls' power to sell & when exercisable
  • LPA 1925 s.101 : L power of sale only if legal mortgage made by deed & reached legal date for redemption / s.103 : exercisable: Ls served notice on Bs requiring repayment of loan / Bs failed to comply 3 months after service /arrears over 2 months interest / Bs breached term under mortgage deed
  • B can redeem mortgage by paying back loan before L enters into contract to sell & obtain injunction to prevent sale / B can redeem between exchange & completion stages / once L enters contract for sale / contract binds B (who loses right to redeem by paying back loan) Waring v London & Manchester Assurance
  • s.104(2) LPA 1925 / if L sells before power of sale is exercisable / B sue L for damages / protects purchaser / but purchaser not acquire good title if knows power of sale is not exercisable
  • Ls owe 2 duties to Bs when exercising power to sell: act in good faith / take reasonable care to obtain true market value of property at date of the sale Cuckmere Brick v Mutual Finance
  • which Ls have priority for proceeds on sale if land subject to more than one mortgage? / if Ls taken correct steps to protect mortgages as registrable dispositions / will appear as registered charges on charges title ( s.27 LRA 2002 ) / LRA 2002 s.48: order of priority order in which mortgages appear on register
  • priority of Ls: under general rule ( s.28(1) LRA 2002 ): L 1, L 2, L 3 / if L 2 not protected charge by registration: L 1, L 3, L 2 ( s.30(1) LRA 2002 )
  • under s.104 LPA 1925 / when L exercises power of sale / sells subject to prior incumbrances & free from ones which do not have priority / in practice: purchaser must ensure that selling L will redeem prior mortgage & sell free of that mortgage
  • L must deal with proceeds of sale / LPA 1925 s.105 / L must discharge any prior incumbrances / hold proceeds on trust & pay: costs & expenses of sale / discharge own mortgage (outstanding loan plus interest & costs) / if not enough money to discharge all mortgages Ls can sue B for remainder
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Mortgages: Overview

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Lenders' rights & remedies: possession

  • if mortgaged land not subject to lease: L can oust Bs & take physical possession of land / if subject to lease: Ls take possession by directing tenants pay their rent to Ls instead of Bs
  • remedy of seeking possession / often exercised with other remedies / Ls usually go to court to obtain a possession order
  • Criminal Law Act 1977 s.6(2): right to possession / not give lawful authority to use or threaten violence to obtain
  • Ls can take possession as soon as completed / usually deed will expressly or impliedly postpone right until B is in default
  • courts limited common law jurisdiction to postpone possession / depends on terms of mortgage deed / no implied discretion to postpone Birmingham Citizens Permanent BS v Caunt
  • at common law / court only refuse possession order or adjourn hearing / if Ls agree / short adjournment (up to 28 days) to allow Bs chance to pay all outstanding / & reasonable chance of this happening
  • court's equitable jurisdiction to postpone possession / more protective of Bs / L only take possession if bona fide & acting reasonably in seeking possession / if B in default may be equitable to allow possession Quennell v Maltby
  • statutory protection / Bs under mortgages of land which include dwelling house / s.36 AJA 1970 only gave court discretion / where Ls sought order for possession / mortgage deeds often provide if Bs default then whole mortgage is immediately payable / court could only postpone in limited cases where likely B could repay whole amount
  • amended by s.8 AJA 1973 / court need only consider possibility of Bs paying arrears within reasonable period & not paying back whole mortgage / if: includes dwelling house / Bs are entitled (a) pay principal sum by instalments or (b) defer payment of it in whole or in part / provision made for earlier payment (on default by Bs or demand by L )
  • s.36 AJA 1970 : not given literal meaning (manifestly unfair if protected B in default only) Western Bank v Schindler / not apply to protect Bs where Ls take possession without a court order Ropaigealach v Barclays Bank
  • reasonable period to repay arrears / question of fact / court will consider rescheduling payment / whether mortgaged property still adequate security for loan / court may postpone possession giving Bs time to sell & repay loan from proceeds (if plenty of equity in property)
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Mortgages: Overview

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Lenders' rights & remedies: appointment of receiver

  • if mortgaged property is subject to a lease / Ls can take possession by requiring tenants to pay rent towards debt / avoid liability for mismanagement may appoint receiver / receiver takes control of mortgaged land & either sells or manages using income to repay the loan
  • receiver agent of appointing L / duties & powers governed by mortgage document & law of agency / either express power to appoint receiver in mortgage deed or implied LPA 1925s.101(1)(iii)
  • Ls power to appoint receiver / arises in same way as power of sale (legal date of redemption reached & power exercisable) / receiver either appointed in accordance with mortgage deed or in writing ( s.109 LPA 1925)
  • statutory order receiver must apply income / LPA 1925 s.109(8): outgoings on property / payments due in respect of prior charges / insurance premiums on property & receiver's costs / interest on overdraft / capital if L agrees / balance to B
  • receivers owe duties to Bs & anyone else with interest in equity of redemption / act in good faith / primary duty is bring about satisfaction of debt & interest owed / due diligence / not obliged to continue business on mortgaged property previously carried on by Bs Medforth v Blake

Lenders' rights & remedies: foreclosure

  • foreclosure / available to L once legal date for redemption has passed
  • effect of foreclosure: vest ownership of Bs' property in Ls / B does not have claim for remaining balance after mortgage is deducted / equity gives court discretion to allow B to redeem even after an order for foreclosure has been made / if lot of equity in property after deduction of mortgage court more willing to re-open foreclosure Campbell v Holyland
  • L must go to court to obtain interim order fixing date B should pay outstanding money / if B fails to pay L may seek order of foreclosure absolute (after which Bs cannot redeem unless court exercises its discretion to allow)
  • foreclosure is not often used / LPA 1925 s.91(2): any person interested in mortgage money or right of redemption / request court order for sale instead of foreclosure
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