Mortgages Notes

Land Law: Mortgages

Terminology

• Mortgagor = borrower

• Mortgagee = lender (mortgagee; building society).

• So householder grants mortgage to bank.

Definition

• Santley v Wilde:

  • 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:

  • deed (s52 LPA s1 LPMPA)

  • + if registered land, substantively register (s27(2)(f) LRA 2002, registrable disposition) [+ S48 LRA].

  • + 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:

  • (1) Mortgage of a legal interest not done by valid deed

  • (2) a contract to grant a legal mortgage, where there is subsequently no valid grant

  • (3) a mortgage of an equitable interest

• (1) Equitable mortgage of a legal estate (mortgagor has legal estate)

  • (most commonly a failed legal mortgage; or deliberate contract to grant a legal mortgage). NO valid deed.

  • Then instead you need an agreement to create a mortgage, an estate contract.

  • Formalities, need s2 LPMPA: in writing; all terms; signed by both parties.

  • De Serville v Argee: exchange of letters will not satisfy s2.

  • 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)

  • borrower only has equitable interest, can only grant an equitable mortgage.

  • Disposition of an equitable interest--S53(1)(c) LPA 1925: minimum requirement: in writing; signed by person disposing (mortgagor).

  • 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:

  • 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.

  • 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

  • Kreglinger v New Patagonia: once a mortgage, always a mortgage.

  • Must be ‘no clog or fetter’ on the ‘equity of redemption’

• (2) Postponement of redemption

  • Cannot prevent redemption (Toomes v Conset)

  • But might lender might be able to postpone if doesn’t render the right to redeem illusory

  • Valid postponement, Knightsbridge Estates v Byrne (commercial; freehold): court upheld validity of mortgage term postponing redemption for 40 years from date of loan

    • Factors:

    • (1) Was arm’s length commercial transaction

    • (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.

  • This was commercial, If domestic, might be different.

  • 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).

    • Factors:

    • 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

  • 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.

  • [[remember: for option contract to be valid: need s2 LPMPA requirements]].

  • Void granted at time of mortgage, Samuel v Jarrah Timber.

  • Valid granted after mortgage in a separate/independent transaction, Reeve v Lisle.

    • Granted 12 days later; mortgage not dependent on grant of the option.

  • 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 a variation of the original mortgage and so part of it; so clog on equity.

• (4) Collateral...

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