MORTGAGES I
SECURITIES
• The function of a security
• Unsecured loans vs. secured loans
• A security can link to:
People
Property
Personal
Land
• The Mortgage = one form of security over land.
Lord Diplock in Pettitt v Pettitt (1970) AC 777 HL
‘Britain has become ‘a property, particularly
a real-property-mortgaged-to-a-buildingsociety-owning, democracy’
Figures for 2009 from Communities & Local Govt.
Website
• 14.6 million households in England (68 per cent of
the total households) own their home
• 11.1 million have mortgages
PRE-1926 DEVELOPMENT OF THE LAW
• Creation of a mortgage
• Effect of failure by mortgagor to repay loan on the fixed date
• At law
• In equity
• The Decree of Foreclosure
TERMINOLOGY
• A mortgage is an interest in property granted by a
mortgagor to a mortgagee as security for repayment of a
debt, with a provision for redemption.
• The mortgagor is the Borrower
• The mortgagee is the Lender
• Redemption is the process of freeing property from a
mortgage by repayment of the debt.
POPULAR ABUSE OF TERMINOLOGY
‘In lay terms, aspiring property owners ‘get’ a mortgage (a
valuable commodity) from a bank or building society (which
is in the business of ‘offering’ mortgages to borrowers),
And the bank or building society may then allow the owners
to ‘keep’ the mortgage when they move house…’
from Clarke and Kohler [2005]
What is wrong with lay terminology?!
6
THE CREATION OF A
LEGAL MORTGAGE
THE CREATION of a LEGAL MORTGAGE
I. LONG LEASE
with a provision for cesser on redemption
s.85(1) LPA 1925:
Mortgage of fee simple by grant of long lease
s.86(1) LPA 25:
Mortgage of lease by grant of a sub-lease
8
THE CREATION of a LEGAL MORTGAGE
II.
•
A CHARGE BY DEED by WAY OF LEGAL MORTGAGE
s.87(1) LPA
Sample clause in mortgage deed:
‘The Borrower charges the property by way of legal mortgage with
payment of all the money payable to the Lender under the mortgage
conditions.’
•
s.87 LPA 25 : The charge gives the Lender
‘the same protection, powers & remedies’ as if the mortgage
had been created under s.85(1) or 86(1) LPA 25
•
The only method in registered land s.23(1) (a) LRA 2002
9
THE CREATION of a LEGAL MORTGAGE
FORMALITIES NEEDED FOR ACTUAL LEGAL STATUS
• A deed (s.52 LPA 1925)
• Registration at Land Registry if Borrower’s title to the land
is registered
• Registration at Land Registry if it is a FIRST mortgage of
an unregistered title (triggers first registration)
Example of a legal charge entered on a
registered title
C: Charges Register
[SPECIMEN]
------------------------------------------------------------------------------------------
1. (02.12.2002) REGISTERED CHARGE dated 23rd
November 2002
2. . PROPRIETOR: CHELSEA BUILDING SOCIETY
of Thirlestaine Hall, Thirlestaine Road,
Cheltenham, Glos. GL53 7AL
THE CREATION OF AN
EQUITABLE MORTGAGE
THE CREATION of an
EQUITABLE MORTGAGE
1. Where there is a contract for the grant of a mortgage:
• an actual contract; or
• a written mortgage made by no/defective deed;
which
 complies with s.2 LP (MP)Act 1989 +
 is specifically enforceable
2. Failure to register a legal mortgage in registered land
3. A mortgage of an equitable interest
A MORTGAGOR’S RIGHTS &
PROTECTIONS
include:1. The Right to Redeem
 at law
 in equity
 significance of legal redemption date?
2.
The Equity of Redemption
3.
‘No clogs on the Equity of Redemption’
TYPICAL PROVISIONS IN A MORTGAGE
Include:
• For repayment of the loan
• Covenants by the Mortgagor relating to the property
itself, e.g.
– maintenance
– insurance
– leasing
• Rights & remedies of the Mortgagee
A MORTGAGEE’S
RIGHT TO POSSESSION
A MORTGAGEE’S RIGHT TO POSSESSION
• An inherent right
‘The mortgagee may go into possession before
the ink is dry on the mortgage unless there is
something in the contract, express or by implication,
whereby he has contracted himself out of that right.
He has the right because he has a legal term of
years in the property or its statutory equivalent.’
Four Maids Ltd v Dudley Marshall Properties [1957]
Ch 317
• Inhibitions on its exercise
White v City of London Brewery Co [1889] 42 Ch.D
• Reason for its exercise
IS A COURT ORDER NEEDED TO REPOSSESS?
Residential Premises
•
s.1(2) Protection from Eviction Act 1977 – If any person unlawfully deprives the
residential occupier of any premises of his occupation of the premises or any part
thereof, or attempts to do so, he shall be guilty of an offence unless he proves that
he believed, and had reasonable cause to believe, that the residential occupier had
ceased to reside in the premises.
•
Ropaigealach v Barclays Bank plc 1999 3 WLR 17
Residential and Commercial premises
s.6 Criminal Law Act 1977
•
any person who, without lawful authority, uses or threatens violence for the
purpose of securing entry into any premises for himself or for any other person is
guilty of an offence, provided that—
• (a) there is someone present on those premises at the time who is opposed to the
entry which the violence is intended to secure; and
• (b) the person using or threatening the violence knows that that is the case.
CAN A MORTGAGOR POSTPONE
A MORTGAGEE OBTAINING
A POSSESSION ORDER?
1. s.36 ADMINISTRATION
OF JUSTICE ACT 1970
2. THE COURT’S INHERENT
JURISDICTION to POSTPONE POSSESION
1. POSTPONING POSSESSION
- s.36 ADMINISTRATION
OF JUSTICE ACT 1970
s.36 ADMINISTRATION OF JUSTICE ACT 1970
Pre-conditions: AJA 1970
•
only applies to residential premises
•
is only available where the mortgagee brings an action
in court for a possession order (see Ropaigealach)
s.36 AJA 1970
• s.36(1) AJA
“Where the mortgagee under a mortgage of land which consists of
or includes a dwelling-house brings an action in which he claims
possession of the mortgaged property … the court may
exercise any of the powers conferred on it by
subsection (2) below if it appears to the court that in the
event of its exercising the power
the mortgagor is likely
to be able within a reasonable period to pay any
sums due under the mortgage…”
• s.36(2) AJA The court has power:
– to adjourn possession proceedings
– or stay or suspend execution of a possession order
or postpone the date of delivery of possession
s.36 AJA 1970
CRITERIA: the mortgagor must
1. Be LIKELY
2. To PAY ANY SUMS DUE under the mortgage
or to remedy any default
3. WITHIN A REASONABLE PERIOD
MEANING OF CRITERIA VARIES
ACCORDING TO MORTGAGOR’S
PURPOSE
IN SEEKING POSTPONEMENT
•
• To pay arrears off
To sell the property him/herself
PURPOSE - TO PAY OFF ARREARS:
THE MEANING OF
‘TO PAY ANY SUMS DUE’
Halifax Building Society v. Clarke [1973] Ch. 307
s.8 ADMINISTRATION OF JUSTICE ACT 1973
PURPOSE - TO PAY OFF ARREARS:
THE MEANING OF
‘WITHIN A REASONABLE PERIOD’
‘reasonable period’ can mean
the whole term of the mortgage
C& G B.S. v Norgan [1996] 1WLR 343
 factors for the court to consider under Norgan
PURPOSE - TO PAY OFF ARREARS :
THE MEANING OF
‘LIKELY’
A realistic prospect & evidence of this
First National Bank v Syed [1991] 2 All ER 250:
Town & Country B.S. v Julien [1991] 24 HLR 312
C&G B.S. v Grant [1994] Times 9th May
Case Law Extracts
FIRST NATIONAL BANK V SYED per LJ Dillon:
‘I need say no more …than that the prospects [of Mr.Syed
obtaining work] are entirely speculative, & there is no
basis for estimating reliably when & whether any, & if so
what, income will be received…. I have to say, with
every regret for the defendants' misfortunes, that if the
test to be applied [is that in s.36 AJA 1970], I am wholly
unable to see any prospect of the defendants paying off
the arrears within any reasonable period, while also
paying current instalments ’
TOWN & COUNTRY B.S. v JULIEN
"Since about January 1990, problems in the
commercial property market have much reduced my
income. However, I believe it is likely that within the
next six months. I will obtain substantial new
contracts which will restore my gross income to its
former levels and enable me to maintain my
mortgage payments and the discharge my arrears”
‘What are the prospects of Mr. Julien actually earning
sufficient sums of money by his own efforts or through any
other commercial way to pay off this very substantial debt?
What he said in evidence was he was quite sure the
recession was ending, that he had, and I am paraphrasing it
slightly, a number of professional irons in the fire which he
may be able to take out and very profitably. It all seems to
me, however you look at it, highly speculative and at the
moment quite frankly is asking the Building Society to act,
or his insurers to act, as his bankers for the next year while
he re-establishes his professional practice which has
suffered so much because of the effect of the recession.
Well I do not consider that being within the words of Section
36 , I do not consider that, however one turns it round to be,
to say, that means that Mr. Julien is likely to be able, within a
reasonable period, to remedy the default which has
occurred’
PURPOSE - TO SELL:
THE MEANING OF
‘WITHIN A REASONABLE PERIOD’
Nat. & Provincial B.S. v Lloyd [1996] 1 All ER 630:
Bristol & West B.S. v Ellis [1996] 73 P & CR 15:
Max. 6-12 months likely, but
no fixed rule
‘LIKELY’
A real prospect and some evidence of a sale occurring
Further cases include:
Target Homes v Clothier [1994] 1 All ER 439
II. THE COURT’S
INHERENT JURISDICTION
TO POSTPONE
POSSESSION
THE COURT’S INHERENT POWER
TO POSTPONE POSSESSION
• LIMITED FUNCTION
Birmingham B.S. v Caunt 1982 Ch 883
‘a short time to afford to the mortgagor a chance of
paying of the mortgage in full or otherwise satisfying
[the mortgagee] but this should not be done if there is
no reasonable prospect of this occurring’
•
LIMITED USE = If s.36 AJA 70 unavailable
finally…
CAN A COURT POSTPONE POSSESSION IN A
CASE OF NEGATIVE EQUITY?
• PURPOSE - TO PAY OFF ARREARS (s.36)?
• PURPOSE - TO SELL (s.36/inherent jurisdiction) ?
Cheltenham and Gloucester PLC v Krausz 1997 1All ER 21