Summary
Summary Legal Mortgages
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- Land Law - MA in Law / GDL
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- Land Law - MA In Law / GDL
Summary of 5 pages for the course Land Law - MA in Law / GDL at Land Law - MA in Law / GDL (Legal Mortgages)
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9 Third party rights over land – Legal MortgagesIntroduction
Can categorise different types of security;
Personal security – father happy to guarantee that daughter will pay loan. But what if both are insolvent? You wont get your money back
Real security – attaching the liability to repay the loan to a specific item of her property – a mortgage or charge of land
Terminology
Mortgagor = the owner of the estate in land who is borrowing a sum of money on security of the mortgage over the property. Mortgagor
gives the mortgage to the lender
Mortgagee = the lender who is taking security over the borrower’s land; he is being given the mortgage
Creation of Legal Mortgages
A mortgage is one of the five interest in land capable of existing as a legal interest in land (s1(2) LPA 1925)
→ If formalities haven’t been complied with = may be an equitable mortgage
Must be created by deed (s52(1) LPA 1925)
Under s85 LPA 1925 – two ways of creating a legal mortgage;
1. Mortgage to take form of a demise (lease) for a term of years absolute subject to a provision for the lease to end on redemption of the
mortgage – rarely used today
2. Use a charge by deed expressed to be by way of a legal mortgage (or a legal charge). the legal charge must be made in the form of a deed
and state that the charge is made by way of legal mortgage
a. Since Land Registration Act 2002, mortgages over land with registered title can only be created in this way (since 13/10/2003)
Legal Mortgage of a Leasehold Estate
Creation of a charge, or creation of a sub-lease for a term of one day less than the term of the lease being mortgaged (s86(1) LPA 1925)
Most mortgages are created by way of charges over the leasehold estate. Since 13/10/2003 this is only method which a mortgage of a registered
leasehold estate may be created
Unregistered Titles
Where first legal mortgage created over an unregistered title, s85(1) LPA 1925 gives lenders right to take custody of the title deeds.
First legal mortgage (if created after March 1998) also triggers compulsory first registration of the title to the land
Registered Titles
Mortgagee must be registered against title at Land Registry. A registerable disposition under s27 Land Registration Act 2002.
Will become legal mortgage only when entered on the charges register
Remedies Available to a Legal Mortgage
1 Debt Action
If borrower has failed to make the payments he has agreed to make, mortgagee can commence an action for recovery of debt. Must check that the
legal date for redemption has passed
Historically, ‘legal date for redemption’ was fixed date after which mortgagee could take the land and sue in contract for repayment for the debt!
Equity intervened – now usually set at 1 month from the date of the mortgage
Mortgagee should check that recovery isn’t barred under the Limitation Act 1980;
- Mortgagee cant recover arrears of capital repayments if >12 years has passed since payments first became due
- Lender cannot recover arrears of interest payments if outstanding for >6 years
Debt Action is limited remedy – highly unlikely the borrower will have the money to satisfy court order of repayment
2 Possession
Can mean one of two things;
(a) If the mortgaged land isn’t subject to a lease, the lenders have a right to oust the borrowers from the property and to take physical
possession of the land
(b) If the mortgaged land is subject to a lease, the lenders take possession of the land by directing that the tenants pay their rent to the
lenders instead of the borrowers
Often exercised with other remedies – eg if want to sell with vacant possession, must obtain possession before, then apply to sell the land
s6(2) Criminal Law Act 1977 – lenders have a right to possession of the mortgaged property, but don’t have lawful authority to use or threaten
violence to obtain possession
, When does the right to take possession arise? Harman J in Four Maids Ltd v Dudley Marshall (Properties) Ltd [1957];
Lenders can take possession of the mortgaged property ‘before the ink is dry on the mortgage’, ie as soon as the mortgage has been
completed.
The terms of the mortgage deed executed by lenders and borrowers may expressly/impliedly postpone this right until the borrower is in
default however
The mortgagee will take possession in order to sell the property or to intercept the income from it. Where property produces income, the
mortgagee can use it to pay the debt owed (though can’t take any sum beyond what is owed to him obvs)
Mortgagee owes mortgagor duty to manage the property with due diligence. If he fails, he must account the income he did received and also for
any income he would have received had he managed the property correctly;
White v City of London Brewery [1889] – mortgagee took possession of public house and leased it as a tied house. Detrimental effect on rent.
Mortgagee was held liable to account to the mortgagor for the additional rent which would have been received had the property
been let as a free house
The procedure for taking physical possession
If mortgagor refuses to move out – mortgagee should apply to court for possession order. Court bailiff may assist
If a dwelling-house, two other provisions apply;
(a) s36 Administration of Justice Act 1970 – court can adjourn possession proceedings if mortgagee might be able to repay the ‘sums due’,
or remedy the breach of mortgage, within a reasonable time
(b) s8 Administration of Justice Act 1973 – where mortgagee deed provides for the sum to be repaid by instalments, ‘sums due’ means only
the instalments which are in arrears at the sate of the possession proceedings, not the full amount outstanding on the mortgage.
a. S36 only used if court thinks mortgagor will, within a reasonable time, be able to repay not only the arrears which were due
when proceedings were commenced but also any arrears which have become due since.
b. If mortgagor can catch up on his payments within reasonable time, court will give him chance to do so
Normally, borrow asks to postpone sale to set up ‘repayment schedule’ or may need period of time to sell the land and use the proceeds to pay
back the amount owed to the lender
Ropaigealach v Barclays Bank [1999] – a mortgagee remains entitled to exercise his right to possession by physical re-entry without bringing court
proceedings.
Only likely where property is empty
Will bypass protective provisions of s36 above. mortgagor’s only protection is s6 Criminal Law Act
Protection from Eviction Act 1977 doesn’t apply to mortgagors in the same way that it applies to residential occupiers under leases and
licences
If mortgaged property has been let out to tenants, the mortgagee only wants to exercise right to collect rents, no court order is required. The
mortgagee will take possession by directing the tenants to pay their rent to him directly
Possession and Human Rights
In Ropaigealach – a mortgagee can exercise its right to possession by peaceful re-entry, even where property involved is a dwelling
Commentators – breach of Human Rights Act 1998; ‘respect for private and family life’ and ‘peaceful enjoyment of his possessions’
Court rejected this in Horsham Properties Group v Clark and Beech [2008] – justified in public interest and necessary security which a mortgagee
needed to take to offer substantial lending on property at affordable interest rates
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