Mortgages
Home Ownership
Huge increase in the past 100 years.
In 1914, around 10% of people owned the property they lived in.
By 2004, this has risen to around 70%.
Behind the growth in homeownership is the growth in the use of mortgages.
The development of law to do with mortgages speeds up in times of economic
recession.
Terminology
Mortgage – ‘a property interest that exists to ensure payment of a debt, most
commonly by selling land if the debt is unpaid’.
Smith, Introduction to Land Law, p296.
Mortgagor – the party that is borrowing the money.
Mortgagee – the party that is lending the money.
Usually a bank or building society.
Equity of redemption – the bundle of rights that belong to the borrower.
Collateral advantage – an obligation in the mortgage agreement for some other
advantage for the lender.
Foreclosure – an alternative remedy, rarely used, similar to repossession.
Often used in the US.
Arrears – failure to make the required repayments.
Usually triggers the lender to take action to repossess a home.
Repossession – borrower forced to move out as the lender takes back the property
and sells it on to a new purchaser, to use the funds to pay off the mortgage.
Legal event.
Personal/family level – 1 in 3 repossessions occurs in the context of family
breakdown.
Normally, a lender gets a court order authorising the repossession.
Borrower has a chance to make their arguments to the court as to
why they should avoid repossession and more time to pay.
In rare cases, the lender will seek repossession without a court order.
Voluntary repossession – where the borrower decides that everything has
just become too much and they want to walk away.
Hand the keys back to the lender, leaving the lender to sell the
property.
Negative equity – the amount owed under the mortgage is more than the value of
the property that they own.
, During a recession, a borrower that has borrowed a large proportion of the
purchase price might find that they are in negative equity, due to fall in house
values.
Not a huge problem in the short term as house prices generally rise.
It is only okay if the borrower can keep making payments on the
mortgage.
Creation of Mortgages
‘…little short of scandalous that there is no modern legislative statement of what a
mortgage or charge is and of the rights which such a mortgage or charge confer.
Instead, registered charges are described as having the same effect as mortgages
created using old, now obsolete methods’.
Stuart and Pearce, p602.
Legal mortgages.
A bank or building society is only going to be interested in giving a legal
mortgage, as they will have more protection under such an arrangement.
S1 LPA 1925.
There are five proprietary interests that can exist as legal
interests if they are created in that way, including a mortgage.
o A legal mortgage should be created by deed.
S23(1) LRA 2002.
The legal charge is now the only permissible way of creating a
mortgage of registered freehold or leasehold land.
o The land is charged by way of legal mortgage as
security for the payment (money borrowed + interest).
S27 and s51 LRA 2002.
For it to take effect as a legal interest over registered title, the
legal mortgage must be registered as a Registrable Charge at
the Land Registry.
o Registration ensures its’ existence and priority.
o If not registered, it will only survive as an equitable
interest.
Lees, p333.
Equitable mortgages.
More likely to be created by accident than by design.
, Mortgage of an equitable interest.
First National Securities v Hegarty [1985].
o Wife’s signature was forged on a joint-legal mortgage.
o Lender had an equitable mortgage against just the
husband’s half of the property.
o Equitable interest means equitable mortgage.
Informal mortgage of a legal interest.
S2 LP (MP) A 1989.
o Failed to use a deed at all when creating the mortgage,
but managed to put an agreement in writing in such a
way that it meets the provisions under this statute.
o Enough to create an equitable mortgage.
Rights and Remedies of the Mortgagee (The Lender)
Action on personal covenant.
Can look to see for the debt that is owed.
Entry into possession/repossession.
Can look to take possession of the property.
Sale.
Can look to sell the property.
www.ukfinance.org.uk
www.shelter.org.uk
1.Action on the Personal Covenant
The mortgage is a contract, the borrower promised to pay the sums due, and as with
any other debt, they can be sued for breaching that obligation.
Recovers any sums due, and any shortfall of the sale.
Between 2008 and 2013, 87% of properties that were taken into possession were
then sold at a loss later on.
Liability continues for a number of years.
Basic time limit for a lender to sue, to recover sums owed is six years for
interest payments, and twelve years for the principle loan sum.
West Bromwich Building Society v Wilkinson [2005].
Wilkinson originally borrowed £36,000 in 1988, and fell behind
with repayments.
The property was repossessed, and then sold.
o Left a shortfall of nearly £24,000.
Wilkinson went off and moved on with life, but twelve years
later, West Bromwich Building Society took action to try to
recover the sum due under the personal covenant.
Home Ownership
Huge increase in the past 100 years.
In 1914, around 10% of people owned the property they lived in.
By 2004, this has risen to around 70%.
Behind the growth in homeownership is the growth in the use of mortgages.
The development of law to do with mortgages speeds up in times of economic
recession.
Terminology
Mortgage – ‘a property interest that exists to ensure payment of a debt, most
commonly by selling land if the debt is unpaid’.
Smith, Introduction to Land Law, p296.
Mortgagor – the party that is borrowing the money.
Mortgagee – the party that is lending the money.
Usually a bank or building society.
Equity of redemption – the bundle of rights that belong to the borrower.
Collateral advantage – an obligation in the mortgage agreement for some other
advantage for the lender.
Foreclosure – an alternative remedy, rarely used, similar to repossession.
Often used in the US.
Arrears – failure to make the required repayments.
Usually triggers the lender to take action to repossess a home.
Repossession – borrower forced to move out as the lender takes back the property
and sells it on to a new purchaser, to use the funds to pay off the mortgage.
Legal event.
Personal/family level – 1 in 3 repossessions occurs in the context of family
breakdown.
Normally, a lender gets a court order authorising the repossession.
Borrower has a chance to make their arguments to the court as to
why they should avoid repossession and more time to pay.
In rare cases, the lender will seek repossession without a court order.
Voluntary repossession – where the borrower decides that everything has
just become too much and they want to walk away.
Hand the keys back to the lender, leaving the lender to sell the
property.
Negative equity – the amount owed under the mortgage is more than the value of
the property that they own.
, During a recession, a borrower that has borrowed a large proportion of the
purchase price might find that they are in negative equity, due to fall in house
values.
Not a huge problem in the short term as house prices generally rise.
It is only okay if the borrower can keep making payments on the
mortgage.
Creation of Mortgages
‘…little short of scandalous that there is no modern legislative statement of what a
mortgage or charge is and of the rights which such a mortgage or charge confer.
Instead, registered charges are described as having the same effect as mortgages
created using old, now obsolete methods’.
Stuart and Pearce, p602.
Legal mortgages.
A bank or building society is only going to be interested in giving a legal
mortgage, as they will have more protection under such an arrangement.
S1 LPA 1925.
There are five proprietary interests that can exist as legal
interests if they are created in that way, including a mortgage.
o A legal mortgage should be created by deed.
S23(1) LRA 2002.
The legal charge is now the only permissible way of creating a
mortgage of registered freehold or leasehold land.
o The land is charged by way of legal mortgage as
security for the payment (money borrowed + interest).
S27 and s51 LRA 2002.
For it to take effect as a legal interest over registered title, the
legal mortgage must be registered as a Registrable Charge at
the Land Registry.
o Registration ensures its’ existence and priority.
o If not registered, it will only survive as an equitable
interest.
Lees, p333.
Equitable mortgages.
More likely to be created by accident than by design.
, Mortgage of an equitable interest.
First National Securities v Hegarty [1985].
o Wife’s signature was forged on a joint-legal mortgage.
o Lender had an equitable mortgage against just the
husband’s half of the property.
o Equitable interest means equitable mortgage.
Informal mortgage of a legal interest.
S2 LP (MP) A 1989.
o Failed to use a deed at all when creating the mortgage,
but managed to put an agreement in writing in such a
way that it meets the provisions under this statute.
o Enough to create an equitable mortgage.
Rights and Remedies of the Mortgagee (The Lender)
Action on personal covenant.
Can look to see for the debt that is owed.
Entry into possession/repossession.
Can look to take possession of the property.
Sale.
Can look to sell the property.
www.ukfinance.org.uk
www.shelter.org.uk
1.Action on the Personal Covenant
The mortgage is a contract, the borrower promised to pay the sums due, and as with
any other debt, they can be sued for breaching that obligation.
Recovers any sums due, and any shortfall of the sale.
Between 2008 and 2013, 87% of properties that were taken into possession were
then sold at a loss later on.
Liability continues for a number of years.
Basic time limit for a lender to sue, to recover sums owed is six years for
interest payments, and twelve years for the principle loan sum.
West Bromwich Building Society v Wilkinson [2005].
Wilkinson originally borrowed £36,000 in 1988, and fell behind
with repayments.
The property was repossessed, and then sold.
o Left a shortfall of nearly £24,000.
Wilkinson went off and moved on with life, but twelve years
later, West Bromwich Building Society took action to try to
recover the sum due under the personal covenant.
