#14649 - Mortgages - GDL Land Law

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General Principles

A mortgage is a:

• Contract

  • Can vary terms

  • Evidence of Court of Chancery intervening because of unfair terms against borrowers

• A security over land

  • Legal property right – a secured debt which bites on the land

Law favours lenders because mortgages are of crucial importance to a domestic economy (RBS v Etridge HL)

Governed by LPA 1925 and principles of registration in LRA 2002

As a contract

• A mortgage is usually an express contract

  • Mortgagor = land owner/borrower

  • Mortgagee = lender

• Parties are free to stipulate terms of the contract

• Sometimes the contractual nature of the interest is in conflict with the proprietary nature of the mortgage security

• It is both proprietary & contractual – the proprietary nature brings with it the attention of equity

• Mortgagee gets a proprietary interest in the land and the borrower retains an equity of redemption (though the modern method of creating mortgages doesn’t involve a transfer of an interest S.87(1) LPA 1925 stipulates that the mortgagee is treated as having the right)

• Both mortgagee & mortgagor may transfer their property rights to a third party i.e. when a bank transfers its mortgage book to another lender.

Definitions

A mortgage as the conveyance of a legal or equitable interest in the borrower’s land to the mortgagee with the provision that the mortgagee’s interest will end upon repayment + interest & costs

The proprietary right upholds the contractual obligations:

Stantley v Wilde (1899)

A mortgagee may stipulate in his mortgage deed for a collateral advantage for himself beyond the repayment of the sum advanced and interest, and may enforce the bargain against his mortgagor, provided it is not unconscionable or oppressive; and there is no presumption, in the absence of evidence to the contrary, that the collateral advantage was given by the mortgagor under pressure.

Nonetheless, a mortgage is unique in nature as there is a principle ‘once a mortgage, always a mortgage’ i.e. the borrower has the right to have their property returned in full once the loan secured on it has been repaid and any clause that interferes with this is struck out.

As device for purchase of property

Mortgage = security for loan

However now the loan is for the purchase of the very security

Conceptually this throws up the question; how can you own something you don’t have the money to pay for it?

Formally:

1. Transfer of estate in land to new owner

2. Execution of mortgage over property

3. Transfer of purchase price to the vendor

Scintilla temporis a sliver of time between the transfer to the new owner & the mortgagee, which may in reality only be a matter of minutes but can make problems

What if the new owner holds the property on trust? The equitable interest comes into being before the mortgagee’s, and might therefore have the potential to override through, say, discovery of actual occupation

However the Cann principle has cleared this up:

Abbey National Building Society v Cann (1991)

Held: (HL) as a matter of law there is no scintilla temporis if the purchaser has been enabled to purchase the property by means of a mortgage, and as such any equitable interests must rank second

This is a practical decision as it reflects the realities of conveyancing: the equitable interests have been given effect by the mortgage and thus it should have precedence

HOWEVER: this precedence is only applicable to those equitable interests dependent on the mortgage; if the equitable interests were there before they override.

Equitable Mortgage

S.2 LPA(MiscProv) 1989 formality – must be in writing & contain all the terms

Equitable mortgage occurs where:

• A legal mortgage fails

• The borrower owns an equitable interest (in reality no lender would lend on an equitable interest)

• Orally created equitable mortgage – standalone case Kinane v Conteh where lender says they were misled by assurances they were getting a mortgage & unconscionable to let the borrower walk away

Must be protected by a Notice i.e. equitable mortgage = registered protected interest (Halifax v Popeck were lucky to have a S.28 transfer not a S.29 sale)

Remedies: need the permission of the Court to enforce

Legal Mortgages

Types of mortgage

Repayment mortgage

• Purchase of residential property/ finance commercial expenditure

• Mortgagor borrows capital sum & agrees to pay back plus interest

• Once mortgage is paid off registered charge is discharged & mortgagor owns the property absolutely

Endowment mortgage

• Purchase of residential property/ not very often used in commercial transactions

• Mortgagor borrows capital sum for fixed period (usually 25 years) & no part of instalments goes towards mortgage but mortgagor enters into endowment policy which works like savings account, which matures at the same time the period ends. If it hasn’t realised enough money the mortgagor will have to re-mortgage or find other funds

Current account mortgage

• Good for borrowers whose only debt is a mortgage

• Agrees overdraft facility to the amount of the mortgage & mortgagor pays funds into the account which go on the interest with any surplus paying off the debt

Pre-LRA 2002

• (Historic) conveyance of the mortgagor’s estate

  • Mortgagees would prevent repayment if the land were more valuable than the debt

  • Equity developed a right to repay on the specified date ‘equity of redemption’

    • Toomes v Conset – any term fettering redemption will be void

  • Impossible to create more than 1 mortgage on an estate

• SS.85&6 LPA 1925 mortgage by long lease

• S.87 LPA Charge by deed by way of legal mortgage

  • LRA 1925 treated this like the giving of a property right though it wasn’t technically

Post-LRA 2002

• Charge method

  • Execute a charge (by deed) S.52 LPA)

    • Signed, attested, delivered, and clear S.1 LPA (MiscProv) 1989

  • Register it S.27(2)(i)

• Failure to execute a charge means mortgage -> equitable

Triggers S.29 special priority rule i.e. the registered charge is only bound by OI & RPI

Remedies

NB: don’t always need the permission of the Court to enforce

• S.95(4) LPA Right to possession; a right not a remedy

  • Four Maids v Dudley Marshall – from the moment the ink is dry

  • Mortgage contracts usually have condition promising not to possess - contractual concept softening property concept

  • Pre-action protocol 2008 possession as ‘last resort’

  • No need for possession order (‘self-help’), though often sought (Ropaigealach v Barclays no court order – but risky when property is occupied). Threats and violence criminal offence S.6 Criminal Law Act 1977

  • Fairclough v Swan Breweries: possession comes with the downside to lenders as they have to credit the debt of the mortgage with income generated whilst in possession (objective duty, not subjective earnings)

• Power of sale to release security “when the mortgage has become due” S.101 LPA

  • HR compatible Horsham v Clarke

  • S.103 conditions to make the power exercisable (damages if not done when exercisable)

• Contractual action for recovery (if possession & sale don’t recover in full)

• Appointment of a receiver S.101(1)(ii) LPA

  • Retains income from the property if a business

  • Lender not liable – he is an agent of the borrower

• Foreclosure – no longer a practical reality in England

Mortgagee’s duties

• Duty to obtain a proper price Cuckmere Brick v Mutual Finance

  • Tse Kwong Law v Wong Chit Sen flogging at the lowest price does not count / Bishop v Blake minimal effort to obtain sale as unreasonable

  • Downsview Nominees v First City Corp no general duty of care to borrower, only specific equitable one

  • Michael v Miller – ‘reasonable’ price is within a range

• Timing: “unfettered discretion” to sell the property Silven Property v RBS however court may:

  • Sell earlier if late sale would cause undue hardship to borrower Palk v Mortgage Services

  • Borrower to sell rather then lender if he is in negative equity & might get a better price Barrett and Barrett v Halifax

Contesting possession

• Priority (Williams & Glynn v Boland – OI)

• Equitable power to stop possession if borrower can pay off immediately

• HR?

• S.91 LPA discretion to sell the land?

  • Polk v Mortgage Funding Services – mortgagee must act fairly even when in possession

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