Mortgage Summary

Mortgages

Definition

A mortgage is a contract where a lender advances money to a borrower. The borrower promises to repay the loan with interest by a specific date, using land or property as security. Mortgages are secured loans, commonly used for house purchases.

Terminology

  • Mortgagor: The borrower.
  • Mortgagee: The lender.

Redemption

  1. Legal date of redemption: Typically six months after the mortgage is granted.
  2. Borrower’s equity of redemption: The borrower's right to free the property from the mortgage by repaying the loan. There should be no "clogs" limiting this right.

Equity

Equity in a property is the difference between its market value and the outstanding mortgage balance. Positive equity exists when the property's value exceeds the mortgage balance.

Legal Mortgage Creation (Northern Ireland)

  • Registered Land: Created by executing a charge, perfected by registration in the Land Registry.
  • Unregistered Land: Mortgage is a conveyance, demise, or assignment of a proprietary interest, subject to a proviso for redemption.
    • Freehold: Conveyance of fee simple or demise of land for a term of years.
    • Leasehold: Assignment of lessee’s interest or by sub-demise.

Equitable Mortgage

  • Equitable Interest: Mortgage of an equitable interest created formally under a deed.
  • Agreement for a Legal Mortgage: Enforceable contract for creating a legal estate.
  • Deposit of Title Deeds: Evidence of an equitable mortgage because of part performance.

England and Wales (Law of Property Act 1925 Sec. 85-87)

  1. Demise for a term of years absolute, subject to cesser on redemption.
  2. Charge by deed expressed as a legal mortgage.

Equitable Mortgages in England and Wales

Law of Property (Miscellaneous Provisions) Act 1989 Section 2 requires a written, signed contract with all mortgage terms. Restrictions of redemption (clogs and fetters) are not permitted.

Case Law Examples
  • Fairclough v Swan Brewery Co Ltd (1912): A term postponing redemption was void if it effectively made it irredeemable.
  • Knightsbridge Estates Ltd v Byrne (1939): A 40-year redemption period was acceptable if not oppressive.
  • Cityland and Property (Holdings) Ltd v Dabrah (1968): An excessive interest rate (19% when the bank rate was 7%) with a penalty clause increasing it to 57% was deemed unconscionable.
  • Samuel v Jarrah Timber and Wood Paving Corporation Ltd (1902): Lender's option to purchase the property was struck down because it prevented the borrower from redeeming the mortgage.
  • G&C Kreglinger v New Patagonia Meat and Cold Storage Co Ltd (1914): Terms inconsistent with the right to redeem, acting as a penalty, or being unfair/unreasonable were not allowed.

Undue Influence

Occurs when a lender or another party coerces a borrower into taking out a mortgage against their free will.

Case Law Examples
  • Barclays Bank plc v O’Brien (1994): Mortgage set aside due to misrepresentation and the bank's failure to ensure proper agreement.
  • Royal Bank of Scotland v Etridge (2001): Banks must advise parties of mortgage ramifications and advise them to get independent legal advice.

Remedies for the Lender

  • Right to sue for breach of contract if the borrower fails to make payments.
  • Right to take possession, though typically requires a court order (Birmingham Citizens Permanent Building Society v Caunt (1962)).
Duties on Sale
  • Lender must obtain the best price reasonably obtainable at the date of sale (Silven Properties v Royal Bank of Scotland Plc (2003)).
  • Right to Foreclosure: Rare, takes away borrower's right to redeem.

Rights for the Mortgagor

Postponement of possession under Sec. 8(1) of the Administration of Justice Act 1973 and Cheltenham and Gloucester Building Society v Norgan (1996).