Legal Mortgages
Structure
1. A problem question on this topic may include discussion of remedies available to a legal
mortgagee and/or enforceability of other interests over the land against a mortgagee
(known as priority).
2. When discussing remedies, identify what, if any, aims the lender has in recovering its
money. If it simply wants to recover arrears then the remedies of a debt action, possession
or appointing a receiver are appropriate. If the lender wants to secure repayment of the
entire sum loaned, ie the capital and interest, then the power of sale or foreclosure are
possibilities. Remember that foreclosure is rarely ordered. It is important to select only
relevant remedies on the facts provided.
Recover arrears (mortgage continues):
Debt Action
The mortgagee can commence an action for the recovery of the debt. Before starting the action they
must check that the legal date for redemption has passed, as the right to ask for repayment does
not arise until this date has passed.
It is usually set at one month from the date of the mortgage. If the payments have been outstanding
for some time, the mortgagee should also check that recovery is not barred under the Limitation Act
1980- the mortgagee cannot recover arrears of the capital repayments if more than 12 years has
passed since the payments first became due or arrears of interest payments if they have been
outstanding for more than six years.
In practice, this remedy is of limited assistance. If the borrower has failed to make the repayments on
the mortgage, it is highly unlikely that they will have the money to satisfy any court order for
repayment that may be made against them.
Possession
LOOK AT LONGER NOTES MORE DETAILED IF THIS APPLIES.
Four Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317- The starting point is that lenders
can take possession of the mortgaged property ‘before the ink is dry on the mortgage’, ie as soon as
the mortgage has been completed. The terms of the mortgage deed executed by lenders and
borrowers may expressly or impliedly postpone this right until the borrower is in default however.
The right to take possession of land can mean one of two things:
a) If the mortgaged land is not subject to a lease, the lenders have a right to oust the borrowers
from the property and to take physical possession of the land.
b) If the mortgaged land is subject to a lease, the lenders take possession of the land by
directing that the tenants pay their rent to the lenders instead of to the borrowers.
The remedy of seeking possession of the mortgaged property is often exercised with other remedies.
For example, if the lenders wish to exercise their power to sell the land, they may want to sell with
vacant possession as this will obtain a higher price than a sale without vacant possession. This means
they will obtain possession first, then apply to sell the land. Section 6 of the Criminal Law Act 1977
also applies to lenders who take physical possession of the mortgaged land. So most lenders go to
, court and obtain a court order when exercising their right to take possession against borrowers, as if
the lenders use or threaten violence to get possession of the mortgaged premises they commit a
criminal offence. Section 6(2) of the Criminal Law Act 1977 provides that the fact that the lenders
have a right to possession of the mortgaged property does not give them lawful authority to use or
threaten violence to obtain possession.
In some cases, mortgagees want possession of the property so that they can intercept the rents paid
by tenants occupying that property. In this way they can recover the debt owed to them. Where the
property is producing income, the mortgagee is entitled to use it to pay the debt owed to them.
However, they are not allowed to take any sum beyond that which is due to them under the
mortgage. The mortgagee does owe the mortgagor a duty to manage the property with due
diligence. Should he fail to do so, they must account to the mortgagor for the income they did
receive and also for any income they would have received had they managed the property correctly-
White v City of London Brewery (1889) 42 Ch D 237.
However, some lenders want to get vacant possession of the mortgaged property so that they can
exercise another remedy, eg where the property is occupied by the borrower and the lender wants
to sell with vacant possession.
Appoint a receiver
As an alternative to taking possession, the mortgagee can appoint a receiver to collect and redirect
the income from the property. The advantage of appointing a receiver is that the mortgagee does
not incur the personal responsibility which is involved in taking possession but nevertheless gets the
ability to use some of the income to repay the debt owed to them. A receiver must be appointed in
writing s109 LPA 1925. If the mortgagee does appoint a receiver, the receiver takes control of the
mortgaged land and then either sells it or manages it and uses the income from it to repay the loan.
The receiver has been appointed by the lender, and therefore the duties and powers of the receiver
are governed by the (mortgage) document under which they are appointed and by the law of agency.
A mortgagee has the power to appoint a receiver provided:
a) the mortgage was created by deed. The power to appoint a receiver is implied into every
mortgage made by deed (Law of Property Act 1925, s 101). The power will often be expressly
included as one of the mortgage terms in any event; and
b) the power has arisen (ie the legal date of redemption has passed) and has become
exercisable.
Once the lenders have checked that their power to appoint a receiver exists, the next step is for them
to check that the power has become exercisable under s 103 of the Law of Property Act 1925. This
happens if any one of three situations applies:
1. The lenders have served notice on the borrowers requiring repayment of the loan and
the borrowers have failed to comply with that notice for three months after service.
2. Interest due under the mortgage is two months or more in arrears.
3. The borrowers have breached a term under the mortgage deed (for example, a
borrowers’ covenant not to grant leases without first obtaining the lenders’ consent).
These requirements are often relaxed or modified in favour of the mortgagee in the mortgage deed.
The receiver must apply the income in the order set out in s 109 of the Law of Property Act 1925.
Check longer notes for order.
Structure
1. A problem question on this topic may include discussion of remedies available to a legal
mortgagee and/or enforceability of other interests over the land against a mortgagee
(known as priority).
2. When discussing remedies, identify what, if any, aims the lender has in recovering its
money. If it simply wants to recover arrears then the remedies of a debt action, possession
or appointing a receiver are appropriate. If the lender wants to secure repayment of the
entire sum loaned, ie the capital and interest, then the power of sale or foreclosure are
possibilities. Remember that foreclosure is rarely ordered. It is important to select only
relevant remedies on the facts provided.
Recover arrears (mortgage continues):
Debt Action
The mortgagee can commence an action for the recovery of the debt. Before starting the action they
must check that the legal date for redemption has passed, as the right to ask for repayment does
not arise until this date has passed.
It is usually set at one month from the date of the mortgage. If the payments have been outstanding
for some time, the mortgagee should also check that recovery is not barred under the Limitation Act
1980- the mortgagee cannot recover arrears of the capital repayments if more than 12 years has
passed since the payments first became due or arrears of interest payments if they have been
outstanding for more than six years.
In practice, this remedy is of limited assistance. If the borrower has failed to make the repayments on
the mortgage, it is highly unlikely that they will have the money to satisfy any court order for
repayment that may be made against them.
Possession
LOOK AT LONGER NOTES MORE DETAILED IF THIS APPLIES.
Four Maids Ltd v Dudley Marshall (Properties) Ltd [1957] Ch 317- The starting point is that lenders
can take possession of the mortgaged property ‘before the ink is dry on the mortgage’, ie as soon as
the mortgage has been completed. The terms of the mortgage deed executed by lenders and
borrowers may expressly or impliedly postpone this right until the borrower is in default however.
The right to take possession of land can mean one of two things:
a) If the mortgaged land is not subject to a lease, the lenders have a right to oust the borrowers
from the property and to take physical possession of the land.
b) If the mortgaged land is subject to a lease, the lenders take possession of the land by
directing that the tenants pay their rent to the lenders instead of to the borrowers.
The remedy of seeking possession of the mortgaged property is often exercised with other remedies.
For example, if the lenders wish to exercise their power to sell the land, they may want to sell with
vacant possession as this will obtain a higher price than a sale without vacant possession. This means
they will obtain possession first, then apply to sell the land. Section 6 of the Criminal Law Act 1977
also applies to lenders who take physical possession of the mortgaged land. So most lenders go to
, court and obtain a court order when exercising their right to take possession against borrowers, as if
the lenders use or threaten violence to get possession of the mortgaged premises they commit a
criminal offence. Section 6(2) of the Criminal Law Act 1977 provides that the fact that the lenders
have a right to possession of the mortgaged property does not give them lawful authority to use or
threaten violence to obtain possession.
In some cases, mortgagees want possession of the property so that they can intercept the rents paid
by tenants occupying that property. In this way they can recover the debt owed to them. Where the
property is producing income, the mortgagee is entitled to use it to pay the debt owed to them.
However, they are not allowed to take any sum beyond that which is due to them under the
mortgage. The mortgagee does owe the mortgagor a duty to manage the property with due
diligence. Should he fail to do so, they must account to the mortgagor for the income they did
receive and also for any income they would have received had they managed the property correctly-
White v City of London Brewery (1889) 42 Ch D 237.
However, some lenders want to get vacant possession of the mortgaged property so that they can
exercise another remedy, eg where the property is occupied by the borrower and the lender wants
to sell with vacant possession.
Appoint a receiver
As an alternative to taking possession, the mortgagee can appoint a receiver to collect and redirect
the income from the property. The advantage of appointing a receiver is that the mortgagee does
not incur the personal responsibility which is involved in taking possession but nevertheless gets the
ability to use some of the income to repay the debt owed to them. A receiver must be appointed in
writing s109 LPA 1925. If the mortgagee does appoint a receiver, the receiver takes control of the
mortgaged land and then either sells it or manages it and uses the income from it to repay the loan.
The receiver has been appointed by the lender, and therefore the duties and powers of the receiver
are governed by the (mortgage) document under which they are appointed and by the law of agency.
A mortgagee has the power to appoint a receiver provided:
a) the mortgage was created by deed. The power to appoint a receiver is implied into every
mortgage made by deed (Law of Property Act 1925, s 101). The power will often be expressly
included as one of the mortgage terms in any event; and
b) the power has arisen (ie the legal date of redemption has passed) and has become
exercisable.
Once the lenders have checked that their power to appoint a receiver exists, the next step is for them
to check that the power has become exercisable under s 103 of the Law of Property Act 1925. This
happens if any one of three situations applies:
1. The lenders have served notice on the borrowers requiring repayment of the loan and
the borrowers have failed to comply with that notice for three months after service.
2. Interest due under the mortgage is two months or more in arrears.
3. The borrowers have breached a term under the mortgage deed (for example, a
borrowers’ covenant not to grant leases without first obtaining the lenders’ consent).
These requirements are often relaxed or modified in favour of the mortgagee in the mortgage deed.
The receiver must apply the income in the order set out in s 109 of the Law of Property Act 1925.
Check longer notes for order.
