Mortgages

Mortgage

A proprietary right over land granted by a borrower (mortgagor) to a lender (mortgagee) as security for a loan, giving the lender powerful remedies such as possession and sale.

Legal Mortgage

A mortgage granted by all legal owners, created by deed, and registered at the Land Registry, making it fully enforceable against third parties.

SRA Example: Legal Mortgage

A registered proprietor grants a charge by deed to a bank and it is entered on the charges register, binding any future buyer.

Equitable Mortgage

A mortgage recognised by equity where a legal mortgage fails due to lack of formalities or incomplete legal ownership.

Equitable Mortgage (Failure of Formalities)

Arises where the mortgage document complies with s 2 LP(MP)A 1989 (written, signed, all terms) but is not executed as a deed or not registered.

Equitable Mortgage (Not All Legal Owners)

If fewer than all legal owners grant a mortgage, only an equitable mortgage over the borrower’s interest is created.

SRA Example: Equitable Mortgage

One co-owner signs a mortgage deed without the other; the lender acquires only an equitable mortgage.

Equity of Redemption

The mortgagor’s equitable right to recover their property once the mortgage debt has been repaid in full.

Legal Right to Redeem

The borrower’s right at law to redeem the mortgage only on the contractual redemption date specified in the mortgage.

Equitable Right to Redeem

The borrower’s equitable right to redeem at any time after the legal redemption date, preventing the lender from keeping the property if repayment is late.

Clog on the Equity of Redemption

Any mortgage term that unfairly blocks, prevents, or unreasonably postpones redemption, which equity will strike down as void.

Postponement of Redemption

A clause delaying redemption may be void unless justified (e.g. commercial borrower, freehold land, equal bargaining power).

No Collateral Advantages Rule

A lender cannot impose benefits that go beyond security for the loan and continue after redemption.

Void Collateral Advantage

A lender forcing the borrower to buy goods exclusively from them even after the mortgage is redeemed.

Option to Purchase (Mortgage Context)

A clause giving the lender the right to buy the mortgaged property is void if it conflicts with the borrower’s right to redeem.

Exception: Separate Purchase Option

A purchase option may be valid if it is a genuinely independent, arms-length agreement and not part of the mortgage transaction.

Equity Looks at Substance

Courts ignore labels and assess whether a clause is in reality part of the mortgage bargain.

Unconscionable Mortgage Terms

Mortgage terms that are unfair, oppressive, penal, or exploitative and will be struck down by equity.

Extortionate Credit Bargain

Extremely high interest rates secured on land that are grossly unfair to the borrower.

All-Monies Charge

A clause securing all present and future liabilities, potentially unconscionable if not clearly explained.

Oppressive Default Clause

A clause allowing repossession or full repayment after a trivial breach.

Penalty Redemption Terms

Disproportionate fees or penalties imposed on early redemption.

Undue Influence

A doctrine allowing a mortgage to be set aside where a borrower was improperly pressured into granting it.

SRA Example: Undue Influence

A spouse charges their home to secure their partner’s business loan without understanding the risks.

Relationship of Trust and Confidence

A relationship (e.g. spouses, partners, parent/child) giving rise to a presumption of undue influence.

Etridge Guidelines

Duties imposed on lenders where undue influence is a risk.

Lender’s Duty under Etridge

The lender must ensure the non-benefiting party receives independent legal advice explaining the risks.

Effect of Compliance with Etridge

If complied with, the mortgage is enforceable and cannot later be set aside for undue influence.

Effect of Non-Compliance

If the lender fails, the mortgage may be set aside against the influenced borrower.

Priority of Mortgages

Rules determining which mortgage is paid first if the property is sold.

Legal Mortgage Priority

Priority is determined by order of registration at the Land Registry.

Equitable Mortgage Priority

Priority is determined by order of creation, unless altered by registration of a notice.

Notice Protecting an Equitable Mortgage

An equitable mortgage protected by a notice on the charges register can outrank a later legal mortgage.

Unprotected Equitable Mortgage

An equitable mortgage not protected by notice ranks behind registered legal mortgages.

Order of Priority (Typical)

Earliest registered legal mortgage, then equitable mortgage protected by notice, then later registered legal mortgage, then unprotected equitable mortgage.

Lender’s Remedies on Default

Actions available to the lender when the borrower breaches the mortgage.

Debt Action

A personal claim to recover mortgage arrears.

Possession and Sale

The lender’s primary remedy to recover the loan by taking possession and selling the property.

Appointment of Receiver

A remedy commonly used for commercial properties to collect rent from tenants.

Right to Possess

The lender’s right to possession arising immediately upon execution of the mortgage.

SRA Trap: Right to Possess

The lender’s right exists even before default, though usually exercised after default.

Self-Help Possession

Peaceable entry without a court order, permitted only for empty commercial premises.

Court-Ordered Possession

The usual route for possession, required for residential or partly residential property.

Statutory Protection for Borrowers

Courts may delay possession to allow borrowers time to clear arrears.

Criminal Liability

A lender commits a criminal offence if they use force to enter without a court order.

Right to Sell

An implied right in every legal mortgage allowing the lender to sell the property.

Power of Sale: Arising

Arises when the first instalment of capital becomes due or, for interest-only loans, at the legal redemption date.

Power of Sale: Exercisable

Becomes exercisable when statutory conditions are met (e.g. default after demand, two months’ interest arrears, or other breach).

No Court Order Required to Sell

A lender does not need a court order to exercise the power of sale.

Duty When Selling

The lender must act in good faith, obtain proper market value, and take professional advice.

Surplus on Sale

Any surplus after repayment of the mortgage must be returned to the borrower.