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Land Law: Mortgages Terminology
? Mortgagor = borrower
? Mortgagee = lender (mortgagee; building society).
? So householder grants mortgage to bank. Definition
? Santley v Wilde: o mortgage = 'a conveyance of land . . . as security for the payment of a debt or the discharge of some other obligation'.
? More modern definition: a proprietary interest in land, granted by mortgagor to mortgagee, as security for a loan of cash.
? Charge by way of legal mortgage: ss85/87 LPA 1925. Formalities for legal mortgage
?????Mortgages is capable of being a legal interest listed in s1(2)(c) LPA 1925.
?????Formalities: o deed (s52 LPA ? s1 LPMPA) o + if registered land, substantively register (s27(2)(f) LRA 2002, registrable disposition) [+ S48 LRA]. o + if unregistered land,
? If first legal mortgage, mortgagee takes title deeds as security, that is sufficient notice to subsequent purchasers/mortgagees.
? if legal mortgage not protected by deposit (puisne mortgage), registered at Land Charges Registry, LCA 1972, a c(i) Charge (s2(4)(i) [[the only legal interest that can be registered at Plymouth Land Charges Registry]]. ? if not registered as a land charge ? s4(5) LCA: void against a purchaser of the land or any interest in such land. Equitable mortgages
?????Can arise in 3 ways: o (1) Mortgage of a legal interest not done by valid deed o (2) a contract to grant a legal mortgage, where there is subsequently no valid grant o (3) a mortgage of an equitable interest
?????(1) Equitable mortgage of a legal estate (mortgagor has legal estate) o (most commonly a failed legal mortgage; or deliberate contract to grant a legal mortgage). NO valid deed. o Then instead you need an agreement to create a mortgage, an estate contract.
1 o Formalities, need s2 LPMPA: in writing; all terms; signed by both parties. o De Serville v Argee: exchange of letters will not satisfy s2. o No longer possible to create an equitable mortgage by deposit of title deeds alone; United Bank of Kuwait v Sahib: deposit of title deeds is not a means of creating an equitable mortgage; but a mortgage given effect in equity because deemed to be a contract to create a legal mortgage.
?????(2) Mortgages of equitable interests (mortgage has equitable interest) o borrower only has equitable interest, can only grant an equitable mortgage. o Disposition of an equitable interest--S53(1)(c) LPA 1925: minimum requirement: in writing; signed by person disposing (mortgagor). o In practice, such a mortgage may be preceded by a contract, an agreement to enter into the mortgage, s2 LPMPA: a contract for disposition of an interest in land.
?????Enforcement/protection of equitable mortgages: o Registered land: can protect by registration of a notice on charges register: s32 Notice LRA 2002/s29(1)? if registered, binding on purchaser for valuable consideration.
? NB, equitable mortgage not overriding interest. o Unregistered: c(iii) Land Charge, LCA 1972 (s2(4)(iii).
? ? if not registered as a land charge ? s4(5) LCA: void against a purchaser of the land or any interest in such land.
Rights of mortgagor (borrower), equity of redemption
?????NB: discussing these issues, maybe always start with Kreglinger v New Patagonia: must be 'no clog/fetter' on the 'equity of redemption'---once a mortgage, always.
?????(1) Equitable right to redeem/Continuing right to redeem o Kreglinger v New Patagonia: once a mortgage, always a mortgage. o Must be 'no clog or fetter' on the 'equity of redemption'
?????(2) Postponement of redemption o Cannot prevent redemption (Toomes v Conset) o But might lender might be able to postpone if doesn't render the right to redeem illusory o Valid postponement, Knightsbridge Estates v Byrne (commercial; freehold): court upheld validity of mortgage term postponing redemption for 40 years from date of loan
? (1) Was arm's length commercial transaction
2 (2) mortgage of freehold property, so at end of 40 years borrower gets back what they mortgaged in first place.
? Other factors: favourable rate of interest; existence of legal advice; lack of unconscionable behaviour. o This was commercial, If domestic, might be different. o CF, not valid postponement, Fairclough v Swan Brewery (leasehold; redemption would be valueless)? cannot postpone redemption to extent that the borrower's right to redeem is rendered illusory: struck down clause of redemption, re could not redeem until 6 weeks before end of lease (had 17.5 years left to run).
? Because it's a leasehold: by 6 weeks before end of lease, borrower gets back very minimal value? you get back something with much less value than what you mortgaged in first place.
?????(3) Options to purchase o Options: allowing option would be a 'clog on the equity of redemption'; if mortgagee could simply exercise the option, would be able to prevent mortgagor ever resuming their interest. o [[remember: for option contract to be valid: need s2 LPMPA requirements]]. o Void? granted at time of mortgage, Samuel v Jarrah Timber. o Valid ? granted after mortgage in a separate/independent transaction, Reeve v Lisle.
? Granted 12 days later; mortgage not dependent on grant of the option. o Composition transaction, mortgage & option part of larger transaction? look at substance of overall character (Warnborough v Garmite).
? Depends if the transaction as a whole is a mortgage, with option attached (so invalid); of if overall substance of transaction is not a mortgage, so equitable principals of mortgage don't govern, option can be valid.
? Valid ? overall 'substance' of transaction not a mortgage, Warnborough v Garmite: option was part of sale & purchase agreement, not part of mortgage. Even though same day.
? Brighton & Hove CC v Audus: court can say the transaction as whole is not a mortgage (even if mortgage involved). Look at substance, not its label.
? Void, option part of mortgage? Jones v Morgan, void option (for 50% of property), even though granted 3 years later, because was treated as a3
variation of the original mortgage and so part of it; so clog on equity.
????? (4) Collateral advantages/ties o If mortgage used to extract additional 'value' from the borrower ? offending term may be struck down, hampering equity of redemption. o Kreglinger v New Patagonia: Valid if
? (a) not unfair/unconscionable;
? (b) not in nature of a penalty;
? (c) doesn't fetter equity of redemption o Generally, must not last beyond the mortgage duration
? Noakes v Rice? lasted beyond mortgage, hampered right to redemption, invalid.
? Biggs v Hoddinott ? lasted up to mortgage, didn't hamper, valid.
? [[both re brewer/beer ties]]
? [[these brewer cases show: if a mortgagor mortgage a 'free house', would be repugnant to the equitable right to redeem if, at end of mortgage, he now owned a 'tied house']].
? Biggs, Chitty LJ: if a collateral advantage is neither
? (1) 'unconscionable/oppressive' bargain (consider equality of bargaining power);
? nor (2) repugnant to right to redeem;
? nor (3) continues beyond redemption date ? valid. o But, could last beyond mortgage term, if an independent transaction:
? Kregliner v New Patagonia, a separate collateral agreement to purchase the borrower's sheepskins at market value, enforceable, even after end of mortgage term. Didn't prevent mortgagor getting back land in same form as when mortgaged (no fetter).
?????NB: the borrower was a business entity; and the security granted over commercial premises. Might distinguish if dealing with a residential premises.
? Confirmed in: Jones v Morgan
? NB, if restraint on trade, invalid:, Esso Petroleum v Harper's Garage: even a wholly independent collateral tie could be invalidated, on public policy grounds, if is a restraint of trade.
? ?? ? (5) Unconscionable terms o Court has equitable jurisdiction to strike out unconscionable terms. o Unconscionable (Multiservice v Marden = more than unreasonable, more than a hard bargain; something unfair, imposed in a morally reprehensible manner; look at 4
relative bargaining powers, experience of parties, pressure, sharp practice, whether legal advice etc) o Court has jurisdiction to strike down a penal rate of interest (Holles v Wyse). Penal = doesn't relate to a genuine pre-estimate of the losses incurred by lender if borrower default's. o Cityland Properties v Dabrah, unconscionable, 19%/38% ? 7%; inequality, no legal advice, compelling need; unjustified size of premium; take advantage
? 19% interest rate; increased to penalty rate of 38% on default
? Court reduced to 7%.
? Inequality of bargaining power:
? lender took advantage of borrower's bad financial situations (couldn't get loan from elsewhere);
? Borrower had a compelling need to take the loan, otherwise would have lost home (no choice).
? Was a professional lender
? Borrower didn't get legal advice o Multiservice Bookbinding v Marden, set out test of 'unconscionable', 'hard bargain', legal advice, B2B/commercial setting, equal bargaining power, no compelling necessity, not professional lender
? Interest rate linked to Swiss Franc, making the initial loan of PS36,000 PS132,000 on redemption.
? Equity will not save someone from a hard/bad bargain.
? Must be unconscionable = morally reprehensible.
? Important factor: manner in which terms imposed.
? Factors, re not unconscionable:
? Interest payments rose because value of pound fell (interest index linked to Swiss franc)
? Was equal bargaining power, hard bargain
? Business 2 business, commercial loan.
? Borrower taken legal advice (from solicitors of repute).
? No pressure applied/unfair advantage taken, no 'sharp practice' by lender.
? No compelling need to take loan (CF Cityland), could have refused without being made insolvent/.
? Lender not a professional moneylender (CF Cityland).
? So: businessmen/commercial; eyes open; legal advice; no compelling necessity; no shar practice by D. Nothing morally reprehensive
5 Noted, the test is not 'reasonableness', but unconscionable: terms were 'unreasonable', but not unconscionable---not morally reprehensible/oppressive.
? Also, lender can consider own needs: need for lender to invest money in a way which preserves its real purchasing power.
? Gave eg of unconscionable bargain: a young, inexperienced or ignorant person; advantage taken of them; to introduce a term which no sensible, welladvised person would have accepted. Legal advice in Multservice; CF no legal advice in Cityland. NB, all mortgages now regulated by FCA under simplified statutory regime: mortgages previously outside FCA regulation (eg second mortgages etc) were covered by CCA 1974 (amended CCA 2006); the principles arising from this case law under consumer credit legislation are still relevant: Falco; Paragon; Davies. Davies v Directloans, 4.6% above market rate, valid, poor credit history, high risk
? 4.6% above market rate, 21.6% interest (market rates were 17%).
? Legal advice received.
? Valid because of lender's risk: poor credit history of borrower (self-employed with irregular incomes). Paragon Finance v Nash, 2-4 % above market rate ok, bank can consider their own interests/financial needs
? Lender discretion to vary interest; Bank of England dropped base rate; Paragon did not drop accordingly.
? Maintaining interest rates at 2-4% above market rate (under discretion to vary interest), ls was not 'grossly exorbitant' under CCA 1974.
? Lender can take into account their own financial needs? lender was in financial difficulties.
? Bank was acting reasonably to protect its own interests. Falco Finance v Gough, dual interest rate not valid
? A dual interest rate (standard rate 13.99%; concessionary rate of 8.99% if no default, if default discount would be permanently lost)
? was 'extortionate' under the Consumer Credit Act 1974; and unfair (not in good faith) under UTCCR 1999.
? Was almost impossible for borrower to make each payment exactly on time.
? The increased rate continued throughout remainder of mortgage term, the discount was lost permanently.o o
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