Land laws: Mortgages

 

 

 

 

 

 

 

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Land laws: Mortgages

A mortgage is a loan given by a creditor to a debtor with a consideration of a property that belongs to the debtor. Once the debt has been cleared, the title in the property will revert back to the debtor. The property in this case (land) is transferred to the lender, but is subject to redemption. According to Lord Lindsey, a mortgage is “a transaction under which land or chattels are given as security for the payment of a debt or discharge of some obligation.”[1]The mortgagor (giver of the loan) enjoys ownership, even if is joint ownership of the asset in question until the mortgagee can fully pay back the loan.

The major laws that govern mortgage transactions are found in the Law of property Act 1925 and the Law of registration of Land 2002. Mortgages can either be legal mortgages or equitable mortgages. The difference being that; in a legal mortgage,the debtor has a legal interest in the property and most jurisdictions have a legislation to regulate them. An equitable mortgage on the other hand is one that is majorly implied, the court will therefore be left with the task of deciding if it meets the elements of a valid legal mortgage. The courts will give priority to the legal mortgage over the equitable mortgage in enforcement when both appear on the same property[2].

Looking at the history of mortgages during the common law, one will notice that there has been a significant change. Before 1926, once a party had committed to payment of a loan by a certain date the property would pass to the debtor automatically in case of default. Equity came in to try and remedy this defect and allowed for the equitable right of redemption. This principle allowed for the repayment of a mortgage loan even after the expiry of the contract duration. [3]

In a mortgage contract, both the mortgagor and the mortgagee reserve certain rights. The rights that protect the mortgagor are majorly based on the equity of redemption. The equity of redemption was developed by the courts of Equity to remedy a defect in the common law. This equity principle came to allow a debtor to still be able to redeem their property in case of lapse of payment duration.

The other aspect of this principle is that a mortgagor has a right to early redemption. This was shown in the case of Fairclough v Swan Brewery Co. Ltd[4], which involved a mortgage contract that was expected to last for twenty years with monthly installment payments.  The contract also contained a provision that the last installment was payable about six weeks before the lease ended. The mortgagor purposed to redeem the mortgage earlier and therefore went to court. The court held that the particular clause made the mortgage irredeemable and that the mortgagor was entitled to redemption of the mortgage.

Case law shows that any fetter or clog that may seek to prevent the equity of redemption is majorly considered to be void. A mortgagor is by law protected from any oppressive contractual terms, any collateral terms that may favor the mortgagee and undue influence. In case involving Cityland and Proprety Holdings v Dabrah, a tenant borrowed a loan from the landlord to buy the freehold of his house. The landlord imposed a premium on the interest and Dabrah was to pay back the loan at an interest rate of twelve percent. The court held that the interest rate of twelve percent was unfair since the parties had unequal bargain power and that the most appropriate interest rate was seven percent.[5]

According to the Land Property Act, a mortgagor reserves the right to sell the property and also the right to lease the property.  The borrower will have to inform and get approval of the mortgagee before they perform such an action. This right is also possessed by the mortgagee when they have possession of the property or if the foreclosure allows it to happen. This was seen in the famous Horsham case that involved the debate on two issues that the mortgagor’s rights provided by the European Convention on Human Rights had been violated when the mortgagee’s right to sell the property was enforced.

The mortgagee also enjoys certain legal rights. They have a right to sue for breach of a contract and that will be limited to a twelve year duration after which they lose the right.[6] The mortgagee will have a right to possession of the property that has been mortgaged. In the case of Four-maids Ltd v Dudley- Marshall[7] that involved a defendant who charged his property worth six thousand pounds; the contract terms provided that the principal sum would not be recalled earlier than December 17, 1958 if the defendant paid the interest within seven days when it was due. On failure to comply with the terms the plaintiff served, the defendant with a written notice for payment of both the interest and the principal sum and later applied for an order for possession of the property. The court held that the mortgagee’s right to possession of property was valid in the absence of implied or expressed terms that contract the right.

The court in the case of HorshamProperties Group Ltd v P Clark & C Beech[8] was of the opinion that the lender reserved the right to sell the property. In the case, the plaintiff was seeking the declaration by the court that the lender’s action of appointing a receiver to sell the house pursuant to section 100(1) of the Law of property Act was contrary to article 1 of Protocol 1 that provided the right to peaceful enjoyment of property. This case enforced the mortgagee’s right to possession of property as provided for in the Law of property Act. In the case of White v City of London Brewery Co[9], the court of appeal held that a mortgagee in possession of the property had to account for any profit or rent received. In the case of Silven Properties Ltd v Royal Bank of Scotland[10], where the plaintiff went to court to have the defendant make the property valuable when selling it, the court held that the mortgagee had no such duty.

The courts have however been empowered by the Administration of Justice Act[11] which allows the courts to suspend, postpone or adjourn proceedings foran order of possession provided that the mortgagor appears to have the potential to pay or ability to amount due in reasonable time. In the case of Cheltenham& Gloucester Building Society v Norgan, the presiding judge LJ Waite expounded on the AJA stating thata judge should give the mortgagor a period that is favorable so as to avoid repeated applications by the mortgagors on the same issue and a just hearing for the mortgagee at the lapse of the extended time.[12]

In the question involving Rees, who took a mortgage from Grantwill bank to complete payment on a house he purchased at Lovenest in Watfield and has now defaulted in payment for six months the advice given to him by the bank is unreliable. Mr. Rees got advice from the back that in the case of early redemption he needed to pay a penalty. He can take Grantwill bank to court seeking that the bank upholds his equitable right of redemption and relaying on the section 36 of the AJA seek a time extension on payment.

Mr. Rees using the case of Cityland and Proprety Holdings v Dabrah can claim that the Grantwill in imposing such a term in the redemption clause that would make him pay a penalty was an infringement of his right to redemption.  In the case, the court held that the mortgagee had a greater bargaining power which was detrimental to the plaintiff. Grantwill being the lenders are at an advantaged position since they can set the terms of the contract that may disadvantage the borrowers.Mr. Rees can also show undue influence by the bank since the advice given was not recommendable to the client.

Using the Administration of Justice Act[13] Mr. Rees can seek the extension of time for his payment of the debt. He can show the court that the two options of selling his business or pursuing the trust fund are enough for probability of payment of the mortgage with time extension. The trust that Mr. Rees relies upon may be challenged by Grantwill claiming it to be mere speculation. In Hastings and Fanning v Goddard the court decided that mere speculation of a trust will not be considered a valid trust.The court in considering the time extension will have an obligation to extend by a period that is favorable to Mr. Rees. Mrs. Rees being pregnant can hinder the bank from possession of the house to violate her right to special case and protection. Being that Mr. Rees is a beneficiary under a trust from the will of his late aunt, he can use this to prove to the court that she has the capability of making the required payments if he is granted an extension.

Evidently, there are very many laws that are governing the mortgages and the way they should be carried out. This is not in a bid to discourage its taking up. On the contrary it is so as to protect the interests of both parties and make the transactions involved as fair as possible. It is a very controversial field but as time goes by, there are different laws and amendments being made in a bid to make it more accessible, affordable and reliable.

The mortgage contract between the Mr.Rees and Grantwill bank needs to have fair and equitable terms to allow both parties to comply with the contract. The law protects both the mortgagor and the mortgagee giving the court the task in making sure that no one who comes to court will feel that justice has been served to them[14].

 

 

 

 

 

 

 

 

 

 

 

Bibliography

  1. Santley v Wilde1899 A 2 Ch 474
  2. Fairclough v Swan Brewery Co. Ltd(1912)A.C. 565
  3. Limitations Act 1980 section 20
  4. Four-maids Ltd v Dudley-Marshall 1957 1 Ch 317
  5. Horsham Properties Group Ltd v P Clark & C Beech 2008 H.C
  6. White v City of London Breweries Co 1889 42 Ch D 237
  7. Administration of Justice Act 1970 Section 36
  8. WOOD, P., & WOOD, P. (2007) Comparative law of security interests and title finance. London, Sweet&Maxwell. SINGER, J. W., BERGER, B. R., DAVIDSON, N. M., & PEÑALVER, E. M. (2014). Property law: rules, policies, and practices.
  9. TYLER, E. L. G., YOUNG, P. W., CROFT, C. E., & FISHER, W. R. (2005). Fisher & Lightwood’s law of mortgage. [Sydney], LexisNexis Butterworths.
  10. SINGER, J. W., BERGER, B. R., DAVIDSON, N. M., & PEÑALVER, E. M.(2014). Property law: rules, policies, and practices
  11. AMERICAN BANKRUPTCY REVIEW, INC. (1932). Conduct of mortgage foreclosures during bankruptcy. New York, N.Y, American Bankruptcy Review

 

 

WORD COUNT=1531

[1]Santley v Wilde1899 C.A 2 Ch 474

[2] TYLER, E. L. G., YOUNG, P. W., CROFT, C. E., & FISHER, W. R. (2005). Fisher & Lightwood’s law of mortgage . [Sydney], LexisNexis Butterworths.

[3] SINGER, J. W., BERGER, B. R., DAVIDSON, N. M., & PEÑALVER, E. M.(2014). Property law: rules, policies, and practices.

[4]Fairclough v Swan Brewery Co. Ltd(1912)A.C. 565

[5] AMERICAN BANKRUPTCY REVIEW, INC. (1932). Conduct of mortgage foreclosures during bankruptcy. New York, N.Y, American Bankruptcy Review.

[6]Limitations Act 1980 section 20

[7]Four-maids Ltd v Dudley-Marshall 1957 1 Ch 317

[8]Horsham Properties Group Ltd v P Clark & C Beech 2008 H.C

[9]White v City of London Breweries Co 1889 42 Ch D 237

[10]Silven Properties Ltd v Royal Bank of Scotland[10][2003] EWCA Civ 1409,4 All ER 484

[11]Admininstration of Justice Act 1970 Section 36

[12] WOOD, P., & WOOD, P. (2007) Comparative law of security interests and title finance. London,  Sweet& Maxwell.

[13]Administration of Justice Act 1970 section 36

[14] SINGER, J. W., BERGER, B. R., DAVIDSON, N. M., & PEÑALVER, E. M.(2014). Property law: rules, policies, and practices.

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