Legal and Equitable Mortgages

Mortgage

Bundle of proprietary rights granted to a lender as security for a loan

Legal mortgage

Mortgage that takes effect as a legal interest in land if formalities are met

Equitable mortgage

Mortgage that takes effect in equity where legal formalities are not satisfied or interest is equitable

Legal mortgage formalities

Must be created by deed and registered

Deed requirement (s52 LPA 1925)

All legal interests in land must be created by deed

Deed requirements (LP(MP)A 1989 s1)

Must state it is a deed, be validly executed, and delivered

Registration requirement (LRA 2002 s27)

Legal mortgage must be registered to take effect at law

Effect of non-registration

Mortgage does not operate as legal but may take effect in equity

Legal vs equitable mortgage test

Check if deed + registration satisfied; if not, consider equitable mortgage

Mortgage by legal owner over legal estate

Capable of being a legal mortgage if formalities satisfied

Defective legal mortgage

Mortgage not created by valid deed or not registered

Equity’s response to defective mortgage

Treated as a contract to grant a legal mortgage if s2 LP(MP)A 1989 satisfied

LP(MP)A 1989 s2 requirements

Must be in writing, contain all expressly agreed terms, signed by both parties

Equitable mortgage (defective legal)

Arises where s2 requirements met despite failure of legal formalities

Mortgage of equitable interest

Always equitable because borrower is not legal owner

Formalities for equitable interest mortgage

Must be in writing and signed by the grantor (s53(1)(c) LPA 1925)

Key distinction legal vs equitable mortgage

Legal requires deed + registration; equitable requires writing + signature

Priority importance

Legal mortgages generally have stronger protection than equitable mortgages

Discharge of mortgage

Occurs when loan fully repaid and charge removed from register

Discharge process

Removal of mortgage entry from Charges Register at Land Registry

When mortgage fully discharged

Only when all references removed from Charges Register

Land Registry discharge form

Specific form required to remove registered charge

Assessment approach mortgage question

Identify type of interest, check formalities, then classify as legal or equitable