MORTGAGES
Mortgagee= lender
NATURE OF MORTGAGES Mortgagor= borrower
Mortgage= contract between lender + borrower + grants proprietary right
Loan with security of the land, mortgage lasts until discharged, gives mortgagee (lender)
proprietary interest in property unless redeemed (repay loan=mortgagee no proprietary right)
s.85 LPA 1925: governs legal mortgages – ‘by way of legal mortgage’
S.87 LPA 1925: charges by way of legal mortgage: ‘where legal mortgage of land is created by
charge by deed, mortgagee shall have same protection, powers and remedies (including right of
actions to obtain possession from occupiers and persons in receipt of rent and profits), where the
mortgage of a estate is a fee simple of terms of years absolute
LEGAL & EQUITABLE MORTGAGES DIFFERENCE
Legal= ‘legal charge’ to create a legal mortgage of a freehold/leasehold under s.87 LPA legal
must be created by a deed (requirements of deed in s.1 LP (MP)A 1989)
Equitable= where borrower originally only has an equitable interest in land or mortgage not
executed with formality required e.g. mortgages by estoppel
PROTECTIONS FOR MORTGAGOR – equity of redemption legal right + equitable right to redeem
EQUITY OF REDEMPTION – bundle of rights mortgagor has under mortgage
Equitable right to redeem after legal date one of most valuable right mortgagor has – but it is
even wider ‘equity of redemption’ represents sum total of mortgagors rights subject to the
mortgage residual rights of ownership mortgagor has in legal state + protection of equity
Equity of redemption is a proprietary right can be sold or transferred, represents mortgagor’s
right to property (or monetary equivalent) when mortgage is redeemed or property sold
Mortgage not opportunity for lender acquire property, security of debt – court of equity will
intervene protect mortgagor + equity of redemption + ensure mortgage ends when debt repaid
LEGAL RIGHT TO REDEEM
Mortgagor has contractual right to redeem (pay off) mortgage on date specified in mortgage
contract (legal date of redemption usually 6months), can be any date specified by parties
Rare for mortgagor to redeem on legal date of redemption – so interest is paid on debt
Passing of legal date triggers mortgagee’s remedies
Due to equity, can redeem at any time after legal date passed for debt, interest + costs right to
redeem beyond date fixed by contract= ‘equitable right to redeem’
EQUITABLE RIGHT TO REDEEM
But Court of equity, ‘once a mortgage, always a mortgage’ allows redemption of the mortgage
after this date – mortgage is security of loan, not opportunity to take mortgagor’s property
Equity right to redemption= payment of principle, interest + costs after contractual date for
redemption would free land from the mortgage
Rules against irredeemability
Mortgage cannot be irredeemable – mortgage cannot be constructed so impossible to repay
Any provision for mortgagor to forfeit property on expiry of legal right to redeem is void, and any
undue postponement or limitation on mortgagor’s right to redeem will not be enforceable
E.g. provision borrow cannot redeem unless pay additional % as ‘redemption fee’ would be void
1
, Mortgagee and attempts to purchase mortgaged property
Provision in mortgage contract property will become mortgagee’s or option to buy is void –
offensive to both legal and equitable right to redeem
Need to determine transaction is a mortgage, and offending term is part of mortgage transaction
Option to purchase property given to mortgagee in a separate and independent transaction valid
Jones v Morgan [2001]: clause where lender entitled to 50% share of borrower’s land after
borrower redeemed mortgage void
Rule prohibiting mortgagee having right to purchase does not prevent mortgagee exercising
normal rights in event mortgagor defaults e.g. power of sale
Unfettered redemption: collateral advantages
Borrower should be able to redeem mortgage and have lenders rights removed simply on
payment – there should be no other conditions as mortgage is security until money repaid
Court strikes down ‘collateral advantage’ where mortgage contract states borrower should fulfil
some other obligation as a condition for redemption or continuation of mortgage
E.g. borrower promises to buy all his supplies from lender or some other preferential treatment
Collateral advantages said to be ‘clog’ or ‘fetter’ on equity of redemption
No objection to a collateral advantage that ceases when mortgage is redeemed, and if terms of
collateral advantage are not unconscionable or restrict right to redeem, will be valid
UNDUE INFLUENCE
When need mortgage, need some else to sign (surety) if influenced unduely
Third party has exerted undue influence or made misrepresentations which led spouse,
cohabitee, relative or friend to agree to a mortgage of co-owned property, third party then uses
for own purposes e.g. to finance a business venture
Mortgagor can claim mortgage void due to undue influence or duress – can be directly or by a
third party e.g. husband inducing wife to co-sign mortgage over jointly-owned home
But important cases – Barclays Bank v O’Brien [1992], CIBC v Pitt [1993], RBOS v Etridge
Mortgage will be set aside where there is an ‘ACTUAL undue influence’ (claimant proves undue
influence) or ‘PRESUMED undue influence’ (relationship of person alleged to exercise undue
influence and victim is of trust and confidence)
Presumption’ of undue influence is a tool to shift evidentiary burden from claimant
Consent must be given freely + know what they are doing for undue influence need to show
victim was persuaded to enter transaction would not have otherwise entered into
3 FACTORS COURTS LOOK AT
(1) The surety or mortgagor must establish undue influence (i.e. induced into loan)
(2) Factual circumstances which should lead the lender to the possibility of undue influence (i.e.
something on facts that should lead lender/mortgagee ‘on guard’ of presence of undue influence)
(3) Steps the bank/lender needs to take in event of possibility of undue influence
Barclays Bank v O’Brien [1992]*: Mrs O’Brien the claimant was surety for a loan for her husband, Mr
O’Brien took out loan for struggling business, loan was secured by mortgage on their home, no one
at the bank explained the documents nor was she advised to seek legal advice, he defaulted on
mortgage payments held mortgage was void against wifebank had constructive notice
For lender to avoid being fixed with constructive notice, ensure meet with couple + advise they
seek independent legal advice if steps not taken, lender will be fixed with constructive notice
2
Mortgagee= lender
NATURE OF MORTGAGES Mortgagor= borrower
Mortgage= contract between lender + borrower + grants proprietary right
Loan with security of the land, mortgage lasts until discharged, gives mortgagee (lender)
proprietary interest in property unless redeemed (repay loan=mortgagee no proprietary right)
s.85 LPA 1925: governs legal mortgages – ‘by way of legal mortgage’
S.87 LPA 1925: charges by way of legal mortgage: ‘where legal mortgage of land is created by
charge by deed, mortgagee shall have same protection, powers and remedies (including right of
actions to obtain possession from occupiers and persons in receipt of rent and profits), where the
mortgage of a estate is a fee simple of terms of years absolute
LEGAL & EQUITABLE MORTGAGES DIFFERENCE
Legal= ‘legal charge’ to create a legal mortgage of a freehold/leasehold under s.87 LPA legal
must be created by a deed (requirements of deed in s.1 LP (MP)A 1989)
Equitable= where borrower originally only has an equitable interest in land or mortgage not
executed with formality required e.g. mortgages by estoppel
PROTECTIONS FOR MORTGAGOR – equity of redemption legal right + equitable right to redeem
EQUITY OF REDEMPTION – bundle of rights mortgagor has under mortgage
Equitable right to redeem after legal date one of most valuable right mortgagor has – but it is
even wider ‘equity of redemption’ represents sum total of mortgagors rights subject to the
mortgage residual rights of ownership mortgagor has in legal state + protection of equity
Equity of redemption is a proprietary right can be sold or transferred, represents mortgagor’s
right to property (or monetary equivalent) when mortgage is redeemed or property sold
Mortgage not opportunity for lender acquire property, security of debt – court of equity will
intervene protect mortgagor + equity of redemption + ensure mortgage ends when debt repaid
LEGAL RIGHT TO REDEEM
Mortgagor has contractual right to redeem (pay off) mortgage on date specified in mortgage
contract (legal date of redemption usually 6months), can be any date specified by parties
Rare for mortgagor to redeem on legal date of redemption – so interest is paid on debt
Passing of legal date triggers mortgagee’s remedies
Due to equity, can redeem at any time after legal date passed for debt, interest + costs right to
redeem beyond date fixed by contract= ‘equitable right to redeem’
EQUITABLE RIGHT TO REDEEM
But Court of equity, ‘once a mortgage, always a mortgage’ allows redemption of the mortgage
after this date – mortgage is security of loan, not opportunity to take mortgagor’s property
Equity right to redemption= payment of principle, interest + costs after contractual date for
redemption would free land from the mortgage
Rules against irredeemability
Mortgage cannot be irredeemable – mortgage cannot be constructed so impossible to repay
Any provision for mortgagor to forfeit property on expiry of legal right to redeem is void, and any
undue postponement or limitation on mortgagor’s right to redeem will not be enforceable
E.g. provision borrow cannot redeem unless pay additional % as ‘redemption fee’ would be void
1
, Mortgagee and attempts to purchase mortgaged property
Provision in mortgage contract property will become mortgagee’s or option to buy is void –
offensive to both legal and equitable right to redeem
Need to determine transaction is a mortgage, and offending term is part of mortgage transaction
Option to purchase property given to mortgagee in a separate and independent transaction valid
Jones v Morgan [2001]: clause where lender entitled to 50% share of borrower’s land after
borrower redeemed mortgage void
Rule prohibiting mortgagee having right to purchase does not prevent mortgagee exercising
normal rights in event mortgagor defaults e.g. power of sale
Unfettered redemption: collateral advantages
Borrower should be able to redeem mortgage and have lenders rights removed simply on
payment – there should be no other conditions as mortgage is security until money repaid
Court strikes down ‘collateral advantage’ where mortgage contract states borrower should fulfil
some other obligation as a condition for redemption or continuation of mortgage
E.g. borrower promises to buy all his supplies from lender or some other preferential treatment
Collateral advantages said to be ‘clog’ or ‘fetter’ on equity of redemption
No objection to a collateral advantage that ceases when mortgage is redeemed, and if terms of
collateral advantage are not unconscionable or restrict right to redeem, will be valid
UNDUE INFLUENCE
When need mortgage, need some else to sign (surety) if influenced unduely
Third party has exerted undue influence or made misrepresentations which led spouse,
cohabitee, relative or friend to agree to a mortgage of co-owned property, third party then uses
for own purposes e.g. to finance a business venture
Mortgagor can claim mortgage void due to undue influence or duress – can be directly or by a
third party e.g. husband inducing wife to co-sign mortgage over jointly-owned home
But important cases – Barclays Bank v O’Brien [1992], CIBC v Pitt [1993], RBOS v Etridge
Mortgage will be set aside where there is an ‘ACTUAL undue influence’ (claimant proves undue
influence) or ‘PRESUMED undue influence’ (relationship of person alleged to exercise undue
influence and victim is of trust and confidence)
Presumption’ of undue influence is a tool to shift evidentiary burden from claimant
Consent must be given freely + know what they are doing for undue influence need to show
victim was persuaded to enter transaction would not have otherwise entered into
3 FACTORS COURTS LOOK AT
(1) The surety or mortgagor must establish undue influence (i.e. induced into loan)
(2) Factual circumstances which should lead the lender to the possibility of undue influence (i.e.
something on facts that should lead lender/mortgagee ‘on guard’ of presence of undue influence)
(3) Steps the bank/lender needs to take in event of possibility of undue influence
Barclays Bank v O’Brien [1992]*: Mrs O’Brien the claimant was surety for a loan for her husband, Mr
O’Brien took out loan for struggling business, loan was secured by mortgage on their home, no one
at the bank explained the documents nor was she advised to seek legal advice, he defaulted on
mortgage payments held mortgage was void against wifebank had constructive notice
For lender to avoid being fixed with constructive notice, ensure meet with couple + advise they
seek independent legal advice if steps not taken, lender will be fixed with constructive notice
2
