What is a mortgage in land law?
A mortgage is security granted by a borrower (mortgagor) over their property in favour of a lender (mortgagee) for a loan. It’s NOT the loan itself - it’s the security interest that allows the lender to enforce remedies if the borrower defaults. The borrower retains the legal estate but subject to the mortgage (a third party right over land).
Is a mortgage capable of being legal?
Yes. Mortgages are capable of being legal interests in land under s 1(2)(c) LPA 1925, described as a ‘charge by way of legal mortgage.’ The terms ‘mortgage’ and ‘charge’ are used interchangeably.
What formalities are required to create a legal mortgage?
A deed is required to create a legal mortgage over a legal estate (freehold or leasehold) - s 52(1) LPA 1925. The deed must meet requirements in s 1 LPMPA 1989. If the document lacks deed requirements, equity may recognise an equitable mortgage under Walsh v Lonsdale.
What formalities apply to mortgages over equitable interests?
A mortgage over an equitable interest (e.g., a co-owner’s interest under a trust) must comply with s 53(1) LPA 1925 - it must be in writing and signed.
Define ‘Mortgagor’
The mortgagor (or borrower) is the owner of the estate in land who borrows money and gives the lender a mortgage as security for the loan.
Define ‘Mortgagee’
The mortgagee (or lender) has the benefit of the mortgage, enabling them to enforce their security if the borrower defaults.
Define ‘Equity of Redemption’
The equity of redemption is the borrower’s right (in equity) to recover the assets subject to the mortgage upon repayment of the debt. If the property is worth more than the debt, the balance payable to the borrower represents the equity of redemption.
What are the five remedies available to a lender?
Possession, Power of sale, Debt action, Appointing a receiver, Foreclosure. Only power of sale and foreclosure END the mortgage. Possession is usually a precursor to other remedies.
What general principle governs which remedy a lender can pursue?
It’s entirely for the lender to decide which remedy to pursue, BUT the lender must avoid a course of action that would substantially increase the burden to the borrower.
When does a lender’s right to possession arise?
The lender has the right to take possession ‘before the ink is dry on the mortgage’ (Four Maids Ltd v Dudley Marshall). The borrower does NOT need to be in default, though in practice lenders only exercise this right if the borrower is in default.
What are the two forms of possession?
Taking physical possession (ousting the borrowers) and directing tenants to pay rent to the lender rather than the borrower.
When must a lender obtain a court order for possession?
When the property is occupied (especially as a dwelling), the lender must obtain a court order to avoid breaching s 6 Criminal Law Act 1977 (cannot use or threaten violence). If the property is empty, a court order may not be required.
What is the pre-action protocol for residential properties?
Where the property is residential, the lender must comply with the pre-action protocol, which promotes open dialogue between lender and borrower to resolve arrears before seeking possession.
This includes considering selling the property or rescheduling debt, weighted in favour of enabling the borrower to continue payments and live in the property.
What protection does s 36 AJA 1970 provide to borrowers?
Section 36 Administration of Justice Act 1970 (as amended by s 8 AJA 1973) allows the borrower to ask the court to exercise discretion to: Adjourn proceedings, OR Suspend execution or postpone the date for possession.
This applies when:
(a) lender has started possession proceedings,
(b) property includes a dwelling-house, and
(c) borrower is likely within a reasonable period to pay sums due (arrears).
What is a ‘reasonable period’ under s 36 AJA 1970?
A reasonable period includes the FULL REMAINING PERIOD of the mortgage (Cheltenham and Gloucester Building Society v Norgan). So if there are 20 years left on a 25-year mortgage, the borrower can spread arrears over those 20 years (but must pay current instalments PLUS arrears).
What must a borrower show to benefit from s 36 AJA 1970?
The borrower must provide a detailed financial plan demonstrating they can pay BOTH: The mortgage instalments as they fall due, AND Any arrears (over the reasonable period).
What is the ‘strict duty to account’ when a lender takes possession?
Where the property produces income, the lender taking possession must:
(a) Account to the borrower for any sum beyond what is due to them
(b) Manage the property with due diligence, accounting for any income that SHOULD have been received had the property been managed correctly.
This is why lenders prefer appointing a receiver for income-producing properties.
What three requirements must be met for power of sale?
The power of sale must: EXIST, Have ARISEN, Have become EXERCISABLE.
When does the power of sale EXIST?
The power of sale is either: Expressly stated in the mortgage deed, OR Implied into every legal mortgage (unless excluded) under s 101 LPA 1925.
When has the power of sale ARISEN?
The power arises when the mortgage money is due, meaning: The legal date for redemption has passed (usually one month into the mortgage term), OR Any instalment of mortgage money has become due under an instalment mortgage (the norm for residential mortgages).
When is the power of sale EXERCISABLE?
Under s 103 LPA 1925, the power becomes exercisable when:
(i) The lender has given the borrower notice to repay the loan AND the borrower has not paid for THREE months after such notice, OR
(ii) Interest is in arrears for TWO months after becoming due, OR
(iii) The borrower has breached a term of the mortgage (other than the covenant to pay mortgage money or interest).
What must a buyer check when purchasing from a lender exercising power of sale?
The buyer only needs to check that the power of sale EXISTS and has ARISEN (s 104 LPA 1925). The buyer does NOT need to check that the power has become exercisable - that’s the lender’s responsibility.
What are the lender’s duties when exercising the power of sale?
The lender must:
(a) Act in good faith and not cheat borrowers (property must be properly advertised; cannot sell hastily at knock-down price)
(b) Take reasonable care to obtain the TRUE MARKET VALUE of the property AT THE DATE OF SALE. The lender is NOT obliged to delay the sale to maximize the price.
What does ‘true market value at the date of sale’ mean?
Provided the lender has ‘exposed the property to the market properly and fairly,’ it will have discharged its duty. The lender can choose WHEN and HOW to sell (private treaty or auction), but must obtain proper value at that time - NOT wait for the market to improve.
