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W19 - Mortgages
Terms in this set (93)
- A legal or equitable proprietary interest in land you do not own.
What is a mortgage?
- The bank
Who has the mortgage?
Mortgagor - Home Owner
Mortgagee - Bank
Who is the mortgagor and who is the mortgagee?
- Where a mortgage is being used to acquire land, and the land being acquired is the security for the mortgagee providing the mortgage.
What is an acquisition mortgage?
- Current account/offset mortgage
What are the different types of mortgage?
- Where the value of your house goes down and so the house is worth less than when you brought it.
What is meant by negative equity?
- The legal title would be conveyed to the mortgagee (the bank) and there would be re-conveyance to the home owner once the mortgage was repaid.
How was a mortgage created before the LPA 1925?
Legal date of redemption - The date the mortgage should be paid off by, if the loan had not been repaid the mortgagors would loose the house and any value it had incurred.
Equitable date of redemption - When the mortgage was not paid by the legal date, it gave relief to the mortgagor and the land would be re-conveyed back to them providing the money with interest and any costs were paid within a reasonable time.
What is the difference between the legal date of redemption and the equitable date of redemption?
Thornborough v Baker (1675)
What case demonstrates how the equitable date of redemption operates?
- Legal title is no longer conveyed to the mortgagee. (s85(2) LPA 1925)
Long Lease - Not popular and only used for legal estates with unregistered title (since LRA 2002)
Charge by deed expressed to be by way of legal mortgage - how mortgages over registered estates are created (s23 LRA 2002)
How is a mortgage created now after the LPA 1925?
- Must be by deed and must declare itself to be a mortgage by expressly stating that it is 'a legal mortgage made by charge' (section 87 of the LPA 25).
- S87 LPA 1925 states that the chargee obtains 'the same protection, powers and remedies' as if the mortgage had been created by a long lease of 3,000 years (Regent Oil Co. v Gregory 1966)
How is a charge by deed expressed to be by way of legal mortgage created? Include any relevant statutory and case authority.
- Through contract
- Through a proprietary interest in the land
What are the two ways the mortgagees interest in having the loan repaid are secured?
West Bromwich Building Society v Wilkinson 2005
- Mr and Mrs Wilkinson purchased a house in Norfolk with the assistance of a £35,895 mortgage.
- In July 1989, the lender obtained an order for possession. In late 1990, the house was sold which left a shortfall of £23,921. For more than 12 years the Wilkinsons heard nothing from the building society, but in 2002 they were served with a claim for £46,865 and costs. This sum represented the initial shortfall and interest since 1990. Held by HL that claim was made too late.
What case demonstrates a mortgagee must make a claim for repayment within a reasonable time or else their claim will be lost?
- The mortgagor only has an equitable interest in the property and thus can only give an equitable interest over it.
- The mortgagor has a legal interest in the land but the mortgage has not been created with due formality:
- A deed has not been used but the mortgage satisfies the formality requirements of s2 LPA (miscellaneous provisions) 1987
- The mortgage is over land with registered title and has not been duly registered as a 'registerable charge' under LRA 2002 and so the mortgage defaults to an equitable interest
When will a mortgage be equitable rather than legal?
- It is still achieved in the old way by conveying to the mortgagee and then reconveying to the mortgagor on repayment of the debt.
How is a mortgage of an equitable interest achieved?
- must be in writing and signed by both parties and contain the express terms of the contract.
- Walsh v Lonsdale 1882
What are the formality requirements under s2 LPA (miscellaneous provisions) 1987 and what case authority supports this?
- Legal mortgages must be registered as a 'registrable charge' over the property (ss25 and 27 LRA 2002). In absence of registration the mortgage becomes an equitable interest.
- An equitable mortgage should be protected by means of a notice against the mortgaged registered title.
How must a mortgage be registered over registered land?
- A legal mortgage binds the world without registration/notice.
- A second or subsequent legal mortgage ('puisne' mortgage) - a class C(i) land charge Land Charge Act 1972
- Equitable mortgage - class C(iii) land charge Land Charge Act 1972
How must a mortgage be registered over unregistered land?
- Appointment of a receiver
What remedies does a mortgagee have if the mortgagor defaults on repayment?
- s87 LPA 1925
- Mobil Oil Ltd v Rawlinson (1982)
What statutory provision and case authority gives mortgagees a right to possession?
Four-Maids Ltd v Dudley Marshall (properties) ltd 1957
- There does not need to be a default on the mortgage for possession to take place. This is unless the mortgagee contracts themselves out of this right by saying they will not take possession so long as payments are made on time.
What case stated mortgagees have a right to possession 'before the ink is dry' and what does this mean?
- The idea that once going into possession the mortgagee must subtract any profits made from the property away from the debt owed.
What is 'wilful default'?
- Any profits they could have made from selling/renting the property.
If a mortgagee goes into possession and does not sell or rent out what must they account for?
- It is easier to sell a property when it is empty, it also prevents the mortgagors, who likely don't want the property to be sold, from making the sale difficult.
Why will mortgagees be interested in possessing a property before selling it?
- If a mortgagor defaults on their mortgage they will be summoned to court by the mortgagee who will be seeking a possession order. If the mortgagee can show they can clear what they owe (this is the whole cost of the mortgage and any interest and cost incurred) the mortgagee in a reasonable time, the court will either suspend or cancel a possession order.
What action against possession can be taken under s36 Administration of Justice Act 1970?
Halifax Building Society v Clarke 1973
What case demonstrates it must be shown that all the cost associated with the mortgage must be repayed, not just what is owed in defaults?
s8 Administration of Justice Act 1973
- A reasonable term is by the end of the mortgage term
What section of what act sets out what is meant by a reasonable time in relation to s36 Administration of Justice Act 1970?
Cheltenham and Gloucester BS v Norgan 1996
- How much they can reasonably pay towards it each month,
- How much is left,
- why they fell into arrears in the first place
What case sets out the factors that will be considered when considering whether what is owed can be payed within a reasonable term?
Quennel v Maltby 1979
- Mortgagor had breached terms of mortgage by leasing out the property. They could not evict the leases because their lease was protected by legislation. They sought possession of the house but the court refused as there didn't seem to be any need to possess the property as the payments for the repayment of the debt were being made on time.
In what case were the mortgagee not allowed to possess, despite the terms of the mortgage not being complied with, because payments for the mortgage were being made on time?
Bristol & West Building Society v Ellis 1997
- Mrs Ellis had fallen into mortgage arrears when her husband left her. She unsuccessfully applied for a suspension of a warrant for possession on the basis she would sell the property in 3-5 years time when her children had finished their full time education. In support of her application, she provided estate agents' opinions showing that the likely sale price for her property should be sufficient to discharge the mortgage. The information provided was insufficient to show whether the property would be sold in 3-5 years or whether the sum of the debt would be retrieved by selling the property.
What case demonstrates that if a person is seeking to rely on s36 on the basis they will repay what is owed by selling the property, there has to be firm evidence that sale is likely within the foreseeable future?
s6 Criminal Law Act 1977 makes it a criminal act to force and intimidate people into being evicted.
Why will mortgagees apply to court for a possession order despite the fact they have a proprietary interest in the property and so technically do not need a possession order?
Ropaigealach v Barclays Bank 2000
- In this particular case the house was not occupied because it was being renovated. This left the mortgagor unprotected and the house was repossessed and sold, even though the mortgagors could have paid what they were owed, had there been court action. It was challenged but was deemed to be human rights compliant. (McDonald v McDonald 2017)
What case demonstrates if a house is not in occupation a mortgagee does not need to seek a possession order and s36 Administration of Justice Act 1970 will not apply?
- They require the lender to send notice of possession proceedings to the property so the tenant or other occupier is aware of the proceedings (once again this does not protect mortgagors who are not living in the property)
When a mortgagee decides to send possession, what do civil procedure rules call for?
Yes, providing they join the claim of someone with a legal interest in the land.
Can trustees apply to the court and seek the relief afforded under s36?
- They can not evict the tenant contrary to the to the terms of the tenancy, however they can appoint a receiver to collect the rental income or sell the property subject to the tenancy.
What happens if the occupier of the house is a tenant whom the mortgagee authorised?
- Mortgagee Repossession (Protection of tenant etc) Act 2010 allows tenants to suspend possession for a period up to two months while they find alternative accommodation.
What happens if the occupier of the house is a tenant the mortgagee has not authorised?
s91 LPA 1925
- Usually this will only happen when the value of the house is in surplus of what is owed to the mortgagee.
Under what section of the act can the borrower apply for sale of the property to repay their debt?
Palk v Mortgage Service Funding Plc 1993
- The lenders wanted to delay sale until the market price rose whereas the mortgagors wanted to sell, this would cut a good proportion of their debt, whereas if the lenders took possession and waited to sell interest would keep mounting on what they already owed.
In what case was an order under s91 for sale successful despite the house being in negative equity, why was this?
Cheltenham and gloucester plc v krausz (1997)
- Where a mortgagee in a negative equity situation seeks possession in order to sell with vacant possession, an application by the mortgagor for an order of sale under s91(2) will be refused.
What case was distinguishef from palk because the outcome in palk was the result of exceptional circumstance? What was the judgement in the case?
Horsham Properties v Clarke and Beech (2009)
What case authority demonstrates the house can be sold by the mortgagee without seeking possession, leaving the new purchaser to evict the previous mortgagor?
Albany Home Loans v Mossey (1997)
- Where a mortgage does not bind joint mortgagors (e.g if undue influence is established.
When is a mortgagee not able to obtain a possession order? What is the case authority for this?
- If banks did not have this security, the would become reluctant to lend. If people were unable to secure loans the countries economy would crash and so it is in the public interest for lenders to have such a high level of security.
Why is it that there is so much security offered to banks in ways of retrieving what they are owed?
- Either expressly in the terms of the legal charge (where express it should state how and when the power may be exercised) or
- through the implied power contained in s101(1)(i) LPA 1925
Where will the power of the lender to sell be conferred?
s101(1)(i) LPA 1925
- When the mortgage is made by deed and when the mortgage money has become due (6 months after purchase usually)
What section of what act set out when the power of sale arises?
s103 LPA 1925
- notice has been served on the mortgagor requiring repayment and three months have elapsed without the mortgagor repaying the whole debt, or interest is at least two months behind or there has been a breach of a term of the mortgage other than one relating to repayment of capital and interest.
What section of what act sets out when the power of sale will be exercisable?
s88(1) LPA 1925
- The sale by lender vests title in the purchaser by overreaching the borrowers equity of redemption, and any other interest over which the mortgage has priority, which vests instead in the proceeds of sale. The mortgage itself and any subsequent charge are extinguished so far as they effect the land itself.
How is title passed by a mortgagee's sale of a freehold property?
s105 LPA 1925
- any proceeds of sale are held by the lender in trust and are first applied to meeting the sale costs and then to repaying the amount owed to it under the mortgage with any balance remaining being payable to the mortgagor or subsequent mortgagees if there are any.
What section sets out how the proceeds of sale are dealt with?
Standard Chartered Bank v Mutual Finance (1971)
What case supports that mortgagees are under a duty to get the best price for the property that is reasonably obtainable?
Bishop v Blake (2006)
What case supports mortgagees will be liable for the difference in value between what they did obtain and what they reasonably could have obtained?
Cuckmere Brick Co v Mutual Finance Ltd (1971)
What case sets out sale by public auction is acceptable?
China and South Sea Bank Ltd v Tan 
What case shows while their is a duty to obtain a fair and true market price for the property, there is no duty to wait to sell at the most opportune time?
Parker-Tweedale v Dunbar Bank (no1) 1991.
What case shows no duty to obtain a fair price at sale is owed to equitable owners because because their interest in the property is protected by their relationship to the trustee who they can sue for a breach of trust?
Cuckmere Brick Co v Mutual Finance Ltd 1971
In what case did borrowers successfully bring a case against lenders who failed to properly advertise the planning permission which came with the property when selling and resulted in a significant decrease of value?
- They acted with good faith and reasonable care was taken during the sale.
What must a mortgagee demonstrate in order to show they obtained a reasonable price?
Williams v Wellingborough Council (1975)
In what case was it said 'sale by a person to himself is no sale at all'?
Farrers v Farrers Ltd 1889
What case shows the property can not be sold by the mortgagee to themselves or to a connecting party?
Silven Properties Ltd v Royal Bank of Scotland plc 2004
- The only way such a duty can be put on the mortgagee is if the mortgagor negotiates it with the lender when agreeing the terms of the mortgage.
What case shows the mortgagee is under no duty to obtain planning permission to make the land more valuable before sale?
- The purchaser will take only the mortgagees interest and the mortgagor will not be effected.
What happens if the mortgagee sells when the power of sale has not arisen?
s104 LPA 1925
- Purchaser takes free of mortgage but the sale can be set aside if it can be proved the purchaser knew about the mortgagees fault.
What happens if the mortgagee sells when the power of sale has arisen but is not yet exercisable? What statutory authority supports this?
- A borrower may seek an order to put aside the sale.
- The court are unlikely to do so if doing so would cause unnecessary hardship.
What happens if a lender breaches the requirements of sale?
s8(3) Administration of Justice Act 1973
- Where the mortgage has ended and the mortgagee takes the whole asset.
- The court will rarely order this in a positive equity situation as it will give the mortgagee more than they are owed.
What is foreclosure, what act and section of the act sets it out?
- For a lender under a mortgage of a commercial property as a lender can avoid personal liability for wilful default or for a breach of duty if the property is sold.
- Buy-to-let mortgages
When will the 'appointment of a receiver' remedy usually be used?
s.109(2) LPA 1925
What section of what act provides a receiver is appointed by the mortgagee but are regarded as an agent of the mortgagor?
Downsview Nominees v First City Corp 1993
What case decided that a receiver owed similar equitable duties as the mortgagee to act to act with reasonable care in the conduct of any sale?
Medforth v Blake 2000
- When Medforth he ran into financial difficulties Blake was appointed a receiver. In running the business, Blake incurred losses and Medforth successfully claimed that his failure to obtain discounts on bulk purchases of pig feed had contributed to those losses for which he should be held liable to account.
What case demonstrates a receiver can be liable for any unreasonable losses incurred as a result of their administration?
- require an indemnity from the lender against any personal liability the receiver may incur.
What will receivers usually ensure before being appointed?
- The equitable right to redeem
- Unconscionable terms and unreasonable interest rates
- Undue influence
What are the main rights mortgagors have?
they may sometimes be in desperate need of money and as a result may end up agreeing to a mortgage which is incredibly unfair.
Why does the law also protect certain rights of mortgagors?
any value in the house belongs to the mortgagor. The mortgagors are entitled to the equity when the house is sold and the mortgage repaid.
What is the equitable right to redeem?
- Contract terms can not prevent redemption of the mortgage and retrieval of assets. If any such terms are found courts will strike them out.
What is the rule against irredemptibility?
Fairclough v Swan Brewery Co Ltd 1912
- It was unlawful to prevent the mortgagor from redeeming the mortgage six weeks before the end of the lease.
In what case was there an example of an irredeemable mortgage?
Knightsbridge Estates Ltd v Byrne 1939
- The mortgage was redeemable, despite it being unusual
In what case was the period of repayment not deemed to be against the rule of irredemptibility?
Jones v Morgan 2001
What case sets out that a mortgagees attempts to purchase the mortgaged property will be void?
Samuel v Jarrah Timber and Wood Paving Corp Ltd 1904
What case sets out there is no need to prove the mortgage or its terms are unconscionable provided it can be proved that the agreement between the parties is in substance a mortgage and that the term to acquire the the mortgaged property is a term of the mortgage?
Warnborough Ltd v Garmite Ltd (2003)
What case shows for Samuel v Jarrah Timber and Wood Paving Corp Ltd 1904 the mortgage must be a mortgage in substance and not just by the label attached to it?
Reeve v Lisle (1902)
What case supports the term to acquire the mortgaged property must be a term of the mortgage rather than some collateral contract?
- promise to buy things from a particular company e.g. pubs will often enter agreements to only purchase from one particular brewery.
What is a collateral advantage?
Noakes v Rice (1902)
What case provided that previously a collateral advantage did not have to continue beyond the term of redemption.
Krelinger v New Patagonia Meat Co 1914
In what case did the law change so collateral advantages can continue beyond the term of redemption providing they are fair and reasonable and do not make redemption difficult in any way?
Esso Petroleum Lrd v Harpers Garage (southport) Ltd (1968)
What case shows agreements for collateral advantage must also not offend the common law doctrine of restraint of trade?
Cityland and Property (Holdings) Ltd v Dabrah 1968
What case provides mortgage agreements can not include unconscionable terms and unreasonable interest rates?
Multiservice bookbinding ltd v marden (1979)
- "a term will be unconscionable and therefore unenforceable when it is in substance objectionable and has been imposed by one party on the other in a morally reprehensible manner"
In what case is an unconscionable term defined?
- If the mortgagor agreed to the term after consulting someone for legal advice.
When will the court be less willing to strike out an agreed term even if it is unconscionable or unreasonable?
s137 Consumer Credit Act 1974
What section of what act allows the court to reopen certain extortionate credit arrangements in order to justice between the parties?
- Prevailing level of interest rates when loan made
- The age, experience and business capacity and state of health of the debtor at the time of the loan.
- Degree and nature of the financial pressure debtor was under at the time of the loan.
- Degree of risk undertaken by the creditor/lender, taking into account the value of security offered.
What section sets out things that may be considered in relation to s137 Consumer Credit Act 1974
- Creates a code which regulates the marketing and advise of mortgages and related products. It essentially requires Mortgagees and Law firms advising Mortgagors to deal fairly and reasonably with customers even when they breach the terms of the mortgage. This includes taking into consideration individual circumstances of the customer. It includes informing customers of any applicable government schemes.
What does the Financial Services and Markets Act 2000 do?
A non-negotiated term will be non-binding if if it is contrary to the requirements of good faith, it causes a significant imbalance between the parties to the detriment of the consumer.
What does The Unfair Terms in Consumer Contracts Regs 1999 provide?
- Where a mortgage contract is not entered into freely (influence from family member or mortgagee)
- If undue influence is proved mortgage can not be enforced by the mortgagee against the mortgagor.
When will undue influence impact a mortgage agreement? What is the effect of undue influence?
- One party of a co-owned property secures their debt using a mortgage and the other party is not fully aware of the risks.
What is the typical undue influence scenario?
They must not understand/be fully informed of all the essential interests - it is not enough to just say your husband persuaded you (Bank of Scotland v Bennett 1998)
The person cant have consented freely to entering the mortgage (Steeples v Lea 1998)
There will be no undue influence if they were aware they were entering into a mortgage. (Stevens v Leeder 2008)
What is required for 'actual' undue influence? Provide any relevant case authority.
Barclays Bank v O'Brien (1992)
What case shows if actual undue influence is proved, there is no need to prove the mortgage was to the manifest disadvantage of the claimant?
- A relationship of trust and confidence existed between the parties and
- The mortgage was to their manifest disadvantage
- It will then fall to the influencer to rebut the presumption by explaining the transaction. (Royal Bank of Scotland v Etridge (no.2) (1998)
What must a claimant establish for 'presumed' undue influence?
mortgagees should advise mortgagors to seek independent legal advice if a mortgage appears to be to their manifest disadvantage. This is known as the etridge protocol.
How can mortgagees avoid mortgages which are later effected by undue influence? What is this protocol known as?
THIS SET IS OFTEN IN FOLDERS WITH...
W2 - What is Property
W2 - Property in Land
W3 - Theories of Property
W4 - Political Economy and the Development of Mode…
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