Mortgages & enforcement

LL.08 — Mortgages & Enforcement

A mortgage is security for a debt over land. Since LRA 2002, a legal mortgage of registered land must be by charge by deed expressed by way of legal mortgage and completed by registration (LRA 2002 s.27(2)(f)) — until registered it takes effect only in equity. An equitable mortgage arises over an equitable interest, by an informally created/uncompleted charge, or by a contract to grant a mortgage (must satisfy LP(MP)A 1989 s.2 — in writing, all terms, signed).

Borrower protection — the equity of redemption. The borrower's right to redeem on repayment cannot be excluded. Watch for:

• Clogs/fetters on the equity of redemption are void (Noakes v Rice).
• Postponement of redemption may be valid if not oppressive/unconscionable (Knightsbridge Estates v Byrne) but void if the right becomes illusory (Fairclough v Swan Brewery).
• Collateral advantages ending at redemption are usually fine (Kreglinger v New Patagonia) — judge by whether the term is oppressive/unconscionable, not merely a "good bargain" (Multiservice Bookbinding v Marden).
• Undue influence (RBS v Etridge): where a surety stands in a relationship of trust (e.g. spouse charging the home for the other's business debts), the lender is put on inquiry and must ensure independent legal advice, else the charge is set aside against the lender.

Lender's remedies (key for SBAQs):

• Possession — under a legal mortgage, arises as soon as the mortgage is made unless the mortgage terms restrict it (Four-Maids v Dudley Marshall), used as a precursor to sale. Where the mortgaged land consists of or includes a dwelling-house, the court may adjourn the proceedings, stay or suspend execution of the order, or postpone the date for possession under AJA 1970 s.36 (read with AJA 1973 s.8) if the borrower is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy any other default under the mortgage — Cheltenham & Gloucester v Norgan treats the remaining mortgage term as the starting yardstick. Where the loan is repayable by instalments (or otherwise deferred) but earlier payment is provided for (e.g. on default or on demand), the court may treat only the arrears as due, and the borrower must also be likely to be able to pay, by the end of that period, the further amounts that would have fallen due by then (AJA 1973 s.8(1)-(2)).
• Sale — power under LPA 1925 s.101 (arises when mortgage money due), exercisable under s.103 (notice + 3 months' default, or 2 months' interest arrears, or breach). Lender must take reasonable care to obtain the true market value (Cuckmere Brick v Mutual Finance).
• Foreclosure (rare), appointing a receiver (s.101/s.109), and suing on the personal covenant.

Common traps: s.36 protection applies only where the mortgaged land consists of or includes a dwelling-house (any building or part of one used as a dwelling, even if part has a shop, office or other business use: AJA 1970 s.39), and only where the borrower is likely to be able within a reasonable period to pay the sums due or remedy the default; the lender is not a trustee of the sale but owes a duty to get a proper price; sale proceeds are applied per LPA 1925 s.105 (costs → secured debt → surplus held on trust for subsequent mortgagees then the borrower). Distinguish legal vs equitable mortgages and don't confuse the s.101 power with s.103 exercisability.

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