EXAM NOTES - Mortgages

Question 1

who is the mortgagor?

Answer 1

the borrower

Question 2

who is the mortgagee?

Answer 2

the lender

Question 3

define a mortgage

Answer 3

1) Santley v Wilde - “conveyance of land as security for the payment of a debt”
2) “charge by deed by way of legal mortgage” ss 85 and 87 LPA

Question 4

how is a legal mortgage created?

Answer 4

• s1(2)(c) LPA 1925 mortgage can be a legal interest in land
• s52 LPA 1925 a legal interest in land must be created by deed
• s85 and s87 LPA 1925 - to create a mortgage, execute a deed to say your land is being charged by way of legal mortgage

Question 5

how is an equitable mortgage created?

Answer 5

1. unenforceable at law
2. could be enforced at equity if complies with s2 LP(MP)A 1989: formalities for a land contract
3. United Bank of Kuwait v Sahib - confirmed need for compliance with s2 LP(MP)A 1989

Question 6

how does someone with an equitable interest only create a mortgage?

Answer 6

• can only create an equitable mortgage
• equitable mortgage must comply with s53(1)(c) LPA 1925 signed writing
• because disposition of subsisting interest in land

Question 7

what is the legal date of redemption?

Answer 7

• earliest date on which the lender allows repayment of the whole loan

Question 8

What is the equity of redemption?

Answer 8

rights the borrower has in the property and how they are protected

Question 9

What is covered by the equity of redemption?

Answer 9

(1) Prevention of redemption
(2) Postponement of redemption
(3) Options
(4) Collateral advantages for mortgagee
(5) Unconscionable terms
(6) Statutory regulations
(7) Undue influence

Question 10

How do courts view the prevention of redemption

Answer 10

• do not allow it

- cannot prevent a borrower taking back their property Toomes v Conset

Question 11

How do courts view the postponement of redemption?

Answer 11

• courts generally suspicious
• Fairclough v Swan Brewery - contract prevented redemption until there was only 6 weeks left on the leasehold; rendered redemption an illusion

Question 12

When have courts allowed the postponement of redemption? Why?

Answer 12

Knightsbridge Estates v Byrne: repayment over 40 years upheld
o Preferential interest rate due to long repayment
o Freehold
o Legal advice
o No unconscionable behaviour
o Commercial transaction

Question 13

Generally, how do courts view option contracts in mortgages?

Answer 13

1. will strike out options as a clog on equity of redemption unless in a separate transaction
2. Kreglinger v New Patagonia - once a mortgage always a mortgage
3. the estate contract must satisfy requirements for a contract in s2 LP(MP)A 1989
   - in writing, contain all terms, signed by both parties

Question 14

In what cases did courts reject included estate contracts?

Answer 14

• Samuel v Jarrah Timber - option to purchase included in the mortgage deed. Struck out
• Jones v Morgan - option to purchase signed three years after mortgage but held to be part of the same transaction so struck out

Question 15

When have courts accepted estate contracts? Why?

Answer 15

Reeve v Lisle

1. option was in separate and independent transaction
2. agreed ten days after mortgage
3. courts look to a range of factors
   - relationship between mortgagor and mortgagee
   - equality of bargaining position
   - commercial or domestic mortgage
   - freehold or leasehold

Question 16

what is the courts’ attitude to collateral advantages for mortgagees contained in the mortgage?

Answer 16

• may be acceptable if not unconscionable Kreglinger v New Patagonia
• look to bargaining power, commercial or domestic, etc

Question 17

how long will collateral advantages continue?

Answer 17

1. if part of the mortgage, cannot last beyond the mortgage’s duration Noakes v Rice
2. if a wholly independent transaction, may continue after the mortgage Kreglinger v New Patagonia

Question 18

How does the equity of redemption protect the mortgagor/borrower?

Answer 18

1) unconscionable terms
2) statutory regulation
3) undue influence

Question 19

how does the concept of unconscionable terms protect the mortgagor?

Answer 19

1. Holles v Wyse - unconscionable bargain or penal rate of interest can be struck out
2. Cityland Properties v Dabrah - unconscionably high interest rate rewritten from 38% to 8%. Court can consider current interest rates and unequal bargaining power crucial.

Question 20

How do courts decide if a term is unconscionable?

Answer 20

Multiservice Bookbinding v Marden

1) test is whether the terms are unconscionable, not whether unreasonable
2) equality of bargaining power?
3) borrower forced by necessity to take the terms?
4) borrower take advice, “eyes open”, know what they were doing?
5) any evidence of sharp practice, unfair or oppressive behaviour?

Question 21

what statutory regulations protect mortgagors?

Answer 21

1) Consumer Credit Acts 2006 and 1974 - commercial and second mortgages
2) Unfair Terms in Consumer Contracts Regulations 1999

Question 22

how does the CCA 2006 and 1974 protect mortgagors?

Answer 22

• Consumer Credit Acts - for second mortgages and buy-to-let mainly
• even if the case is not governed by it, case law can be referred to by analogy
  1) Davies v Directloans – mortgagee can charge more if the borrower has a poor credit rating
  2) Falco Finance v Gough – penalty interest rate imposed after one late payment - an ‘extortionate credit bargain’
  3) Paragon Finance v Nash - lenders can vary rates based on their own financial problems

Question 23

How does the UTCCR 1999 affect mortgagors?

Answer 23

• Unfair Terms in Consumer Contracts Regulations
• was the deal contrary to good faith?
• did it cause a significant imbalance in the parties’ rights?
• eg the penalty interest rate in Falco Finance v Gough

Question 24

What is the general principle about undue influence?

Answer 24

1) Kingsnorth Trust v Bell - if the mortgagor or one of the mortgagors was unduly influenced into signing the deed the mortgage is unenforceable against them
2) if the bank fails to prevent undue influence it could be held to have constructive notice of undue influence and will take the property subject to M’s interest, which may be overriding
3) overriding interest: actual occupation + interest in land Sch 3 para 2 LRA 2002

Question 25

When would a bank be on notice of a risk of undue influence?

Answer 25

- if the loan is for the sole benefit of one part Barclays Bank v O'Brien - bank needs to be less aware if loan is for both parties CIBC v Pitt - does the purpose of the mortgage benefit the family as a whole eg Thompson v Foy - mortgage paid for mother and daughter to move overseas

Question 26

What should a bank do to ensure Ms are not unduly influenced

Answer 26

1) not rely on one mortgagor to get another's signature Kingsnorth Trust v Bell 2) follow RBS v Etridge (No 2) - ensure all mortgagors have private meetings with a solicitor to explain the risks

Question 27

What are the elements of the rights of mortgagees?

Answer 27

(1) Action in contract for debt (2) Right to possession (3) Taking possession a. Court order + defence to court order in s36 AJA 1970 b. Peaceful re-entry (4) Power of sale (5) Duties of mortgagee upon sale (6) Power to appoint a receiver

Question 28

what are the two main remedies for a mortgagee?

Answer 28

possession and sale

Question 29

What is an action in contract for debt?

Answer 29

- mortgage creates contractual obligations - failure to repay constitutes a breach - mortgagee can sue based on breach of contract - but the vast majority of mortagors have no money if they have stopped paying so pointless

Question 30

What is the first stage in an action for possession or sale?

Answer 30

pre-action protocol - attempt to find a compromise in terms of different payment plans - therefore find alternatives to possession and sale

Question 31

explain the morgagee's right to possession

Answer 31

- Four Maids v Dudley - creates as soon as the mortgage comes into effect - White v London Brewery can take possession and rent it themselves, but risky as could have to account for lower profits if a higher rent could be achieved - Palk v Mortgage Service - if a sale would be more advantageous to the mortgagor, court could order it instead

Question 32

What is the more common method of the bank taking possession?

Answer 32

by court order - but s36 Administration of Justice Act 1970 mortgagor can ask court to exercise its discretion to postpone possession - if the house is a dwelling

Question 33

how do courts decide whether to exercise their discretion under s36 AJA 1970?

Answer 33

1) will the borrower be able to pay back the sum in a reasonable time? 2) calculated by reference to the entire remaining term C&G v Norgan 3) Mortgagor must present a financial plan showing how they will repay N&P v Lloyd 4) Mortgagor could sell the property themselves, but only if a particular sale is about to go through Target v Clothier

Question 34

When does a right of sale arise?

Answer 34

- s101 LPA 1925 as soon as money becomes due under a mortgage made by deed - Payne v Cardiff RDC as soon as one installment of capital is due

Question 35

When is the right of sale exercisable?

Answer 35

s103 LPA1925 i) notice requiring repayment has been issued and in arrears for three months after issuance ii) interest has been in arrears and unpaid for two months iii) breach of other mortgage term

Question 36

How should the mortgagee act in selling the property?

Answer 36

- Cuckmere Brick v Mutual Finance - take reasonable care to obtain a proper price for the property - Tse Kwong Lam v Wong Chit Sen - mortgagee must take expert advice on how to sell - Silven Properties v RBS - no obligation to improve the property + entirely up to the mortgagee when to sell

Question 37

when does the mortgagor lose the right to redeem?

Answer 37

as soon as lender enters into a contract of sale | - Property & Bloodstock v Emerton

Question 38

Where do the profits from sale go?

Answer 38

first - expenses of the sale second - their mortgage third - subsequent mortgages finally - any surplus to the mortgagors

Question 39

Explain the appointment of a receiver

Answer 39

- power implied by s101(1)(iii) - property expert to manage the repossessed property - deemed to be the agent of the mortgagor not the mortgagee - complaints therefore go to the receiver not the mortgagee

Question 40

How is a legal mortgage of unregistered land protected?

Answer 40

- by deposit of title deeds | - this binds the whole world - sufficient notice

Question 41

how is an equitable mortgage of registered land protected?

Answer 41

- notice on charges register - s32 LRA 2002 - binding on any purchaser but not an overriding interest

Question 42

how is an equitable mortgage of unregistered land protected?

Answer 42

- register a Class C(iii) land charge | - under s2(4)(iii) LCA 1972

Question 43

how is priority of mortgages determined in registered land?

Answer 43

legal mortgage - s48 LRA 2002 the order the mortgages are entered onto the register, regardless of order of creation equitable mortgage - priority determined by date of creation

Question 44

When will a collateral advantage be struck out?

Answer 44

Kreglinger v New Patagonia 1) unconscionable 2) a penalty 3) inconsistent with right to redeem

Question 45

What is the impact of falling property prices?

Answer 45

1) less likely court will order postponement of sale under s36 AJA 1970 (C & G v Krausz)

Question 46

other than a court order, how can a bank take possession?

Answer 46

- peaceful re-entry/self-help method - Ropaigealach v Barclays - but danger of committing offence if any violence used

Question 47

How is a legal mortgage of registered land protected?

Answer 47

- registered under s27(2)(f) and s48 LRA 2002 - charge on the charges register - if not registered, only takes effect as an equitable charge (Mortgage Corporation v Nationwide)