Chapter 9: Mortgages

Question 1

Who is the mortgagor?

Answer 1

The borrower

Question 2

Who is the mortgagee?

Answer 2

The lender

Question 3

How must a legal mortgage be made?

Answer 3

A legal mortgage must be made by deed

Question 4

How can an equitable mortgage be created?

Answer 4

• Parties agree mortgage is to take effect in equity only
• An unsuccessful attempt is made to create a legal mortgage
• Borrower only holds equitable interest in property

Question 5

A contract to create a legal mortgage gives rise to an equitable mortgage from what time?

Answer 5

Date of the contract

Question 6

Does an equitable mortgage need to be by deed?

Answer 6

No, but it must be in writing and signed by mortgagor or their agent

Question 7

How is a legal mortgage of registered land protected?

Answer 7

• A legal mortgage must be completed by registration
• Once registered, the mortgagee / lender has priority over competing interests (unless they are protected on the register as overriding interests)

Question 8

How is an equitable mortgage of registered land protected?

Answer 8

Equitabe mortgages of registered land are protected by placing a notice on the property’s register of title

Question 9

How is a legal mortgage of unregistered land protected?

Answer 9

• If land is unregistered, the first legal mortgage is protected by the deposit of title deeds
• A second legal mortgage is protected by registration of a C(i) land charge against the name of the mortgagor (borrower)

Question 10

How is an equitable mortgage of unregistered land protected?

Answer 10

By registration of a class C (iii) land charge against the mortgagor’s name.

Question 11

What is required if the equitable mortgage is over an equitable interest, e.g. a beneficiary’s interest under a trust?

Answer 11

Mortgagee should give notice to the trustees

Question 12

There is usually an imbalance of bargaining power between mortgagor/borrower and the mortgagee/lender. How may the Courts respond to an imbalance of power?

Answer 12

The Court may intervene and strike down particular clauses in a mortgage to protect the borrower

Question 13

What is the right to redeem the property?

Answer 13

The right to pay off the loan in full and regain rights over the property from the mortgagee / lender

Question 14

What is the redemption date?

Answer 14

• The earliest date upon which the loan can be repaid in full and the property redeemed
• Usually six months after the start of mortgage

Question 15

What will happen if a term postponing the right to redeem is illusory?

Answer 15

A term postponing the right to redeem will be void if it renders the right to redeem illusory

Question 16

What is the repayment period?

Answer 16

The longest time that can be taken to pay off the mortgage in full

Question 17

Can a mortgage clause purport to give the mortgagee/lender the right to purchase the mortgage estate?

Answer 17

No, a clause purporting to give the mortgagee/lender the right to purchase the mortgaged estate will be void

Such a clause would conflict with the borrower’s right to redeem

Question 18

What is a collateral advantage in a mortgage agreement?

Answer 18

• An additional advantage aside from the repayment of the loan
• E.g. the borrower agreeing to sell only the lender’s petrol

Question 19

Are collateral advantages void?

Answer 19

• A collateral advantage is not void in itself provided that they do not fetter the borrower’s right to redeem the property
• Collateral advantages are usually void if they extend beyond the date of redemption

Question 20

What is an unconscionable term in a mortgage?

Answer 20

• A term which is morally reprehensible or improper and unreasonable in light of all the circumstances
• The Court will void an unconscionable mortgage term

Question 21

Which third-party interests will a mortgage be subject to?

Answer 21

• Legal tenancy of unregistered land granted before the mortgage was created
• A legal tenancy of registered land not exceeding seven years
• Equitable tenancy of unregistered land which has been protected as an estate contract by registration of a C(iv) land charge
• The interest of an occupier who doesn’t own the property, but has contributed to the purchase price
• An equitable tenancy of registered land that does not exceed seven years and the tenant is in occupation

Question 22

What is required where an institution is lending money secured by co-owned property, but the proceeds are to be used by only one of the co-owners for a separate purpose?

Answer 22

Other co-owner must be:

• Separately represented by another solicitor, and
• Given full financial information

Question 23

Which 5 remedies are available for a mortgagee / lender when a borrower defaults on their legal mortgage?

Answer 23

1. Sue for debt
2. Take possession
3. Foreclose
4. Sell
5. Appoint a receiver

Question 24

Whilst a mortgagee/lender can usually always take possession, the presence of what on the land adds an additional requirement, and what is this step?

Answer 24

If there is a dwelling on the land, possession can only be sought through the Courts

Question 25

What is foreclosure?

Answer 25

* Extinguishes the right to redeem * Mortgagee (lender) becomes owner of property * Requires a Court order in order to transfer the legal estate from the borrower to the lender

Question 26

Only when will the right to foreclose arise?

Answer 26

Contractual date set to redeem the mortgage has passed (usually six months after creation)

Question 27

Does the mortgagee have a right to sell a mortgaged property if the mortgagor has defaulted on their legal mortgage?

Answer 27

Yes, the mortgagee has a right to sell the mortgaged property without the need to apply to a court provided that the contractual date set to redeem the mortgage has passed (usually six months after the mortgage was created)

Question 28

When will the power of sale become exercisable?

Answer 28

If one or more of the following are satisfied: 1. Interest payments are more than **two months** in arrears 2. There has been a written request for repayment of the capital and **three months** have passed without payment 3. There is a breach of another term of the mortgage If one or more of the conditions met, the right to sell automatically arises

Question 29

What is the right to appoint a receiver as agent of mortgagor?

Answer 29

- The receiver acts as agent for mortgagor - Agent can manage or sell property - More often used in commercial mortgages

Question 30

Which 5 remedies are available for a mortgagee / lender when a borrower defaults on their legal mortgage?

Answer 30

1. Sue for debt 2. Take possession 3. Foreclose 4. Sell (but no power to convey or transfer the legal estate) 5. Appoint a receiver (only arises if mortgage made by deed, otherwise application must be made to Court)

Question 31

What two things will have priority over a properly registered legal mortgage in the registered system?

Answer 31

1. Charge registered **before** it, and 1. Overriding interest **if it existed before** it

Question 32

If there is an equitable mortgage of registered legal estate and it has been protected by placing a notice or restriction on the property’s register of title, what will the equitable mortgage have priority over?

Answer 32

The equitable mortgage will have priority over **any** later dealings of the legal estate (even later legal mortgages)

Question 33

In the unregistered system, which legal mortgage will have priority?

Answer 33

Whichever one is protected by deposit of the title deeds with the lender

Question 34

For all legal mortgages in the unregistered system other than the first protected by the title deeds, what is the main factor in determining priority?

Answer 34

The date of registration as a legal charge

Question 35

In the unregistered system, how should (1) a legal mortgage not protected by deposit of title deeds and (2) an equitable mortgage be protected?

Answer 35

Legal mortgage: Class C(i) puisne mortgage land charge Equitable mortgage: Class C(iii) general equitable interest land charge

Question 36

What is postponement?

Answer 36

Process whereby lenders agree between themselves to vary the priority of their respective charges

Question 37

If a borrower defaults on their mortgage and the mortgage does not contain an express mention of the lender's right to take possession of the property, is repossession possible?

Answer 37

Yes, a lender is entitled to possession of the property from the date that the mortgage is executed even if the mortgage agreement does not expressly mention this right