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MORTGAGES I

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.

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MORTGAGES I

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  1. MORTGAGES I

  2. 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.

  3. Lord Diplock in Pettitt v Pettitt (1970) AC 777 HL ‘Britain has become ‘a property, particularly a real-property-mortgaged-to-a-building- society-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

  4. 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

  5. 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.

  6. 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?!

  7. THE CREATION OF ALEGAL MORTGAGE

  8. THE CREATION of a LEGAL MORTGAGE • 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

  9. THE CREATION of a LEGAL MORTGAGE • 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

  10. 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)

  11. Example of a legal charge entered on a registered titleC: 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

  12. THE CREATION OF ANEQUITABLE MORTGAGE

  13. THE CREATION of anEQUITABLE 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

  14. A MORTGAGOR’S RIGHTS &PROTECTIONS

  15. include:- 1. The Right to Redeem • at law • in equity • significance of legal redemption date? • The Equity of Redemption • ‘No clogs on the Equity of Redemption’

  16. 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

  17. A MORTGAGEE’S RIGHT TO POSSESSION

  18. 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

  19. 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.

  20. 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

  21. 1. POSTPONING POSSESSION - s.36 ADMINISTRATION OF JUSTICE ACT 1970

  22. 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)

  23. 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 ifit appears to the court that in the event of its exercising the powerthe 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

  24. 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

  25. MEANING OF CRITERIA VARIES ACCORDING TO MORTGAGOR’S PURPOSEIN SEEKING POSTPONEMENT To pay arrears off To sell the property him/herself

  26. 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

  27. PURPOSE - TO PAY OFF ARREARS:THE MEANING OF ‘WITHIN AREASONABLE 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

  28. 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

  29. 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’

  30. 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”

  31. ‘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’

  32. 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

  33. THE COURT’S INHERENT JURISDICTION TO POSTPONE POSSESSION

  34. 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

  35. 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 Krausz1997 1All ER 21

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