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The Creation Of Mortgages Notes

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The creation of Mortgages Forms of Mortgages

Two main forms of mortgage: o The Legal Mortgage
? Essentially where L gains a legal charge in the land mortgaged by M to L - two most common forms are:
? Repayment Mortgage

Where M agrees with L to pay a constant monthly payment (subject to interest) o Over an agreed period of time
? Endowment Mortgage

This is linked to an endowment life assurance policy o Essentially, the policy is designed to produce a sum large enough to pay off the sum borrowed on maturity (i.e. policy holder dying)
? With luck, there should be some surplus for the borrower o The lender is paid interest alone until the policy matures.
? This means that since M retains legal title to the mortgage, multiple mortgages can be arranged over the same fee simple

However, the attractiveness of the mortgages are that the property can often be sold on default of payment by M o Which will not often repay the outstanding balance of two mortgages o The equitable mortgage
? This is encountered where

Equitable interest mortgaged

Agreement to mortgage in the future

Where formalities for legal mortgage have not been satisfied o The charge over land
? This is different from a legal charge

Equity recognises the charge as security short of a mortgage o Thus, the court can order the sale of the property or the appointment of a receiver o But there is no right of foreclosure nor right to take possession. How to create a mortgage

Legal Mortgage o A deed o An intention to create a mortgage
? This is rather obvious when you have a Deed

However, the courts will infer mortgages where the substance of a transaction of "absolute transfer" was in fact intended as security for an obligation o If the purchase price is a loan and the property is clearly intended to be recovered on repayment then = mortgage o BUT can have legitimate sale where property intended to be transferred but their remains an option of repayment.

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