MORTGAGES
A mortgage is a form of proprietary security interest granted over land by a purchaser/landowner in
return for the advancement of a loan to them by a lender
Operates in both a residential and commercial context
‘A conveyance of land... as security for the payment of a debt or the discharge of some other obligation
for which it is given’ (Santley v Wilde [1899])
Reflects the historical position where land was physically transferred to the lender, who was only
obliged to return it when the debt was repaid (mortgage as distinct from a charge)
However, under the modern position, the borrower retains the land, but grants the lender rights
to enforce repayment (lender has a charge over the land)
A mortgagee grants the mortgage (money) in return for the rights of security and is technically
in possession of the mortgage itself, whereas a mortgagor (borrower) grants a mortgage over
the land in return for the mortgage finance
Acquisition mortgage- a mortgage loan used to acquire land (usually alongside a deposit) which
can be repaid directly (either on a rolling basis or at the end of the term) or by buying an
endowment policy that produces a lump sum at the end of the term (now less common)
Non-acquisition mortgage- a mortgage raised on property a borrower already owns, for example
to spend on improvements, or to finance other ventures
The creation of a mortgage
A legal mortgage (applies only to legal and not equitable title) can only be created over unregistered
land in 2 ways (LPA 1925)
A mortgage by demise (by deed) for a term of years absolute subject to a cesser on redemption
A mortgagee acquires a 3,000-year lease over the land, while the mortgagor has an
equitable right to redeem that lease and bring it to an end once their debt is repaid
Almost never occurs in practice
A charge by deed expressed to be by way of legal mortgage
A mortgagee is only granted a legal charge over the land but has ‘the same protections,
powers and remedies’ as if they had a 3,000-year lease (s87 LPA 1925) until the debt is
repaid and the mortgagor retains legal title to the land
Acts as a method of converting unregistered land into registered land, as the grant of a legal
mortgage automatically triggers first registration (s4(1)(g) LRA 2002)
In registered land, a legal mortgage can only be created as a registered charge (s23(1) LRA 2002)
Must be created via deed, but as this is now also a registrable disposition, it must be completed
by registration, or it will be equitable only (s27(2)(f) LRA 2002)
An equitable mortgage can arise in one of four circumstances
(1) via the mortgaging of an equitable estate/interest
Does not require a deed but must be completed in writing and be signed (s53(1)(c) LPA
1925)
(2) via an informal/defective legal mortgage
Follows the rule in Walsh v Lonsdale [1882] where the parties attempted to create a legal
mortgage, but failed to comply with the formality requirements
, (3) via a legal mortgage tainted by fraud
If the land has more than one legal owner, all must agree to a legal mortgage over it- if
one owner fraudulently signs for another, an equitable mortgage may be granted which
only binds the fraudulent mortgagor
(4) via proprietary estoppel
Kinane v Alimany Mackie-Conteh [2005]
Equitable charges are easy to create and require no specific formalities beyond written evidence that
the land was intended to be charged for the security of the loan (Swiss Bank Corp v Lloyds Bank Ltd
[1982])
The effect of undue influence and misrepresentation
Must consider (1) proof of undue influence/misrepresentation, (2) whether the mortgagee has
been put on notice/inquiry and (3) whether the mortgagee has taken reasonable steps
(1) proof of undue influence or misrepresentation
C must show actual undue influence by demonstrating that their consent to the
agreement was actually procured by undue influence and that any decision taken was
not of their own volition
It will be insufficient if C freely agreed to the charge, but then later regrets consenting
(Royal Bank of Scotland v Bennett [1998])
C may alternatively show presumed undue influence where he can prove (1) a
relationship of trust and confidence between C and the alleged undue influencer and (2)
that the transaction at hand cannot be readily explained by the parties’ relationship
Limb 1 will automatically be presumed to be satisfied in relationships such as
parent/child, solicitor/client and doctor/patient, but otherwise must be shown on the facts
of the case
Spouses are crucially not covered under limb 1 (Royal Bank of Scotland v Etridge (No 2)
[2001]) and while trust and confidence may be proved in non-romantic relationships,
Barclays Bank v O’Brien [1994] held that it will most easily be shown if there are ‘sexual
and emotional ties’
Proof of misrepresentation must be shown on the facts of the case
(2) a mortgagor must show that the mortgagee was put on inquiry of undue
influence/misrepresentation (situations addressed in Etridge)
Mortgagee has actual notice of such conduct
Alternatively, where the mortgagee does not have actual notice of such conduct, but he
knows that the provision of security is for another person’s debts and that the
relationship between the surety and debtor is non-commercial (constructive notice)
A lender is thus only put on inquiry if it actually knows that one party is standing as
surety for another (Mortgage Business plc v Green [2013]) and if a mortgage is to be
advanced to a husband and wife for their joint benefit, a mortgagee will not be put on
inquiry unless he is aware that the true purpose is to benefit only one party (CIBC
Mortgages plc v Pitt [1993])
(3) reasonable steps by the mortgagee to protect itself
If a mortgagee is put on inquiry, it must then take reasonable steps to ensure the
guarantor knows the risk they are taking and that they still wish to proceed (if these
steps are taken, the mortgagee is protected)
A mortgage is a form of proprietary security interest granted over land by a purchaser/landowner in
return for the advancement of a loan to them by a lender
Operates in both a residential and commercial context
‘A conveyance of land... as security for the payment of a debt or the discharge of some other obligation
for which it is given’ (Santley v Wilde [1899])
Reflects the historical position where land was physically transferred to the lender, who was only
obliged to return it when the debt was repaid (mortgage as distinct from a charge)
However, under the modern position, the borrower retains the land, but grants the lender rights
to enforce repayment (lender has a charge over the land)
A mortgagee grants the mortgage (money) in return for the rights of security and is technically
in possession of the mortgage itself, whereas a mortgagor (borrower) grants a mortgage over
the land in return for the mortgage finance
Acquisition mortgage- a mortgage loan used to acquire land (usually alongside a deposit) which
can be repaid directly (either on a rolling basis or at the end of the term) or by buying an
endowment policy that produces a lump sum at the end of the term (now less common)
Non-acquisition mortgage- a mortgage raised on property a borrower already owns, for example
to spend on improvements, or to finance other ventures
The creation of a mortgage
A legal mortgage (applies only to legal and not equitable title) can only be created over unregistered
land in 2 ways (LPA 1925)
A mortgage by demise (by deed) for a term of years absolute subject to a cesser on redemption
A mortgagee acquires a 3,000-year lease over the land, while the mortgagor has an
equitable right to redeem that lease and bring it to an end once their debt is repaid
Almost never occurs in practice
A charge by deed expressed to be by way of legal mortgage
A mortgagee is only granted a legal charge over the land but has ‘the same protections,
powers and remedies’ as if they had a 3,000-year lease (s87 LPA 1925) until the debt is
repaid and the mortgagor retains legal title to the land
Acts as a method of converting unregistered land into registered land, as the grant of a legal
mortgage automatically triggers first registration (s4(1)(g) LRA 2002)
In registered land, a legal mortgage can only be created as a registered charge (s23(1) LRA 2002)
Must be created via deed, but as this is now also a registrable disposition, it must be completed
by registration, or it will be equitable only (s27(2)(f) LRA 2002)
An equitable mortgage can arise in one of four circumstances
(1) via the mortgaging of an equitable estate/interest
Does not require a deed but must be completed in writing and be signed (s53(1)(c) LPA
1925)
(2) via an informal/defective legal mortgage
Follows the rule in Walsh v Lonsdale [1882] where the parties attempted to create a legal
mortgage, but failed to comply with the formality requirements
, (3) via a legal mortgage tainted by fraud
If the land has more than one legal owner, all must agree to a legal mortgage over it- if
one owner fraudulently signs for another, an equitable mortgage may be granted which
only binds the fraudulent mortgagor
(4) via proprietary estoppel
Kinane v Alimany Mackie-Conteh [2005]
Equitable charges are easy to create and require no specific formalities beyond written evidence that
the land was intended to be charged for the security of the loan (Swiss Bank Corp v Lloyds Bank Ltd
[1982])
The effect of undue influence and misrepresentation
Must consider (1) proof of undue influence/misrepresentation, (2) whether the mortgagee has
been put on notice/inquiry and (3) whether the mortgagee has taken reasonable steps
(1) proof of undue influence or misrepresentation
C must show actual undue influence by demonstrating that their consent to the
agreement was actually procured by undue influence and that any decision taken was
not of their own volition
It will be insufficient if C freely agreed to the charge, but then later regrets consenting
(Royal Bank of Scotland v Bennett [1998])
C may alternatively show presumed undue influence where he can prove (1) a
relationship of trust and confidence between C and the alleged undue influencer and (2)
that the transaction at hand cannot be readily explained by the parties’ relationship
Limb 1 will automatically be presumed to be satisfied in relationships such as
parent/child, solicitor/client and doctor/patient, but otherwise must be shown on the facts
of the case
Spouses are crucially not covered under limb 1 (Royal Bank of Scotland v Etridge (No 2)
[2001]) and while trust and confidence may be proved in non-romantic relationships,
Barclays Bank v O’Brien [1994] held that it will most easily be shown if there are ‘sexual
and emotional ties’
Proof of misrepresentation must be shown on the facts of the case
(2) a mortgagor must show that the mortgagee was put on inquiry of undue
influence/misrepresentation (situations addressed in Etridge)
Mortgagee has actual notice of such conduct
Alternatively, where the mortgagee does not have actual notice of such conduct, but he
knows that the provision of security is for another person’s debts and that the
relationship between the surety and debtor is non-commercial (constructive notice)
A lender is thus only put on inquiry if it actually knows that one party is standing as
surety for another (Mortgage Business plc v Green [2013]) and if a mortgage is to be
advanced to a husband and wife for their joint benefit, a mortgagee will not be put on
inquiry unless he is aware that the true purpose is to benefit only one party (CIBC
Mortgages plc v Pitt [1993])
(3) reasonable steps by the mortgagee to protect itself
If a mortgagee is put on inquiry, it must then take reasonable steps to ensure the
guarantor knows the risk they are taking and that they still wish to proceed (if these
steps are taken, the mortgagee is protected)
