Land 5 Mortgages II

Michael v Miller

**Perfection as to price is not required.** The lender will not be liable for losses if the price is within the correct bracket or within an acceptable margin of error

Barclays Bank v O’Brien

RBS v Etridge (No "2) (Undue Influence)

Banks must ensure that the transaction is full explained by an independent solicitor to the party entering the morgtgage not for the own personal benefit

Where should a mortgagee follow the RBS v Etridge guidelines?

In every non-commercial case where a private individual offers their property as security for another person’s debts

Relationships of Presumed Undue Influence

Parents and Child/ Doctor and Patient/ Trustee and Beneficiary/ Solicitor and Client

Legal Mortgages LRA 2002, s27(2)(f)

Must all be registered to attain status as a legal mortgage

Unregistered Mortgages LRA 2002, s27(1)

Do not take effect as legal mortgages and become equitable mortgages only

Priority of Legal Mortgages LRA 2002, s48

Priority of registered charges depends on when they are entered into the register, the earlier the better

Priority of Equitable Mortgages LRA 2002, s28

Priority of equitable mortgages ranks in order of creation

Protecting an Equitable Mortgage LRA 2002, s29(1)

An equitable mortgage over registered land can be protected by entering a notice on the charges register

Protected Equitable Mortgage Priority LRA 2002, s29(1)

A protected equitable mortgage will take priority over a subsequent legal mortgage

Unprotected Equitable Mortgage (LRA 2002, s29(1))

Will not take priority over a subsequent registrable disposition or either a registered estate or a registered charge

Postponement

Priority rules can be modified expressly by entering a deed of priority or intercreditor deed

Rights of the Lender on failure to make payments

Sue on the contract for outstanding debt, repossess the property, sell the property, appoint a receiver or foreclosure

Negative Equity

Where the value of the mortgage property is less than the outstanding mortgage debt

Limitation period for recovery of debt

12 years

Limitation period for recovery of interest

6 years

Pre-Action Protocol 2008

Possession must be a last resort

Conditions for Sale

Power must have arisen in accordance with statutory rules, must be exercisable in accordance with statutory riles and the lender must fulfil its duties on sale

Surplus from a Sale

Will go to the borrower

Receiver LPA 1925, s101(1)(iii)

Acts as mortgaged property manager where the lender does not wish to take possession or sell

Medforth v Blake

Receiver must act with due diligence with the main duty of paying off the mortgage debt

Foreclosure

A rare draconian remedy where the freehold vest in the lender and the borrower loses all rights to the property

Four Maids v Dudley Marshall (Properties) Ltd

Right to possess arise as soon as the mortgage is granted

Possession LPA 1925, s85(4)

Gives the mortgagee the right to take possession

Limits on Right to Possession

Criminal Law Act 1977, s6 and Pre-Action Protocol 2008

Criminal Law Act 1977, s6

It is illegal to use or threaten violence to enter a property, so it may be advisable to obtain a court order for possession

Postponement Administration of Justice Act 1970, s36

Court can postpone the right to possess where it appears the mortgagor may be able to pay any sums due

Ropaigelach v Barclays Bank plc

AJA, s36 does not postpone possession where there has been no application for an order for possession

Horsham Properties Group Ltd v Clark

AJA, s36 does not enable the courts to prevent a lender from exercising a power of sale without first obtaining a court order

Cheltenham & Gloucester Building Society v Norgan

For AJA, s36 “within a reasonable period” is the remainder of the mortgage term

National & Provincial Building Society v Lloyd

a borrower requesting a postponement of a possession should present **a detailed financial plan** to the court showing how the loan and arrears will be paid off before the term expires

Bristol and West Building Society v Ellis

Postponement was granted to allow the borrowers to achieve a sale of the property themselves

Target Home Loans Ltd v Clothier

The court awarded a short three-month postponement of possession to allow the borrower to sell the property. There was evidence from an estate agent that a genuine offer had been received. 

Mortgage Services Funding plc v Steele

In order to grant a postponement to allow the borrower to sell, the court required firm evidence of an imminent exchange of contracts.

Requirements for Right to Sell

Does it exist? Has it arisen? Lender’s Duties

Does the right to sell exist?

Can be Express or Implied

Implied Power of Sale LPA 1925, s101(1)(i)

A mortgagee where the mortgage is made by deed has the power to sell the mortgaged property either together or in lots by public auction or by private contract

Has the right to sell arisen? LPA 1925, s101(1)(i)

Right to sell arises when the mortgage has become due

Payne v Cardiff

The power of sale arises as soon as one portion of capital is due, meaning that it arises as soon as one payment is due

Right to Sell for an Interest Only Mortgage

Will arise at the legal redemption date, usually about six months from the start of the mortgage

Lender Sells LPA 1925, s104

If the lender sells after the power has arisen but before it is exercisable, a sale to an innocent purchaser will be valid, but the lender will be liable in damages to the borrower

When is right to sell exercisable? LPA 1925, s103

One of the following must be met: 1. Notice requiring payment of the whole loan has been served by the lender and the borrower has defaulted 2. Interest is unpaid and arrears for at least two months 3. There has been some breach of another mortgage provision, such as a covenant to keep the mortgage property insured or in good repair

Lender’s Duties when exercising the right to sell

To sell the property for market price and give the surplus to the next person entitled

Cuckmere Brick Co Ltd v Mutual Finance Ltd

the lender owed the borrower duty to take reasonable care to obtain the **true market value** or **proper price** for the property

Tse Kwong Lam v Wong Chit Sen

A lender cannot Simply put the property up for auction. Lenders are under a duty to take **expert advice as to the method of sale and the marketing strategy and the reserve price.** 

Silven Properties Ltd v Royal Bank of Scotland plc

A lender has **an unfettered discretion as to when to sell** and cannot be expected to delay in order to improve the property or wait for an upturn in the property market.