The difference between unsecured and secured loans.

If a bank makes an UNSECURED loan, and then the borrower goes bankrupt, because the bank hasn't
secured that loan on anything, quite often, there's no way of recovering that money for the bank or
the lender.

However, if the lender has SECURED the loan on a property, then the bank essentially is entitled to
sell or raise income from it. The lender could rent it out and get the rent to get the money back the
money outstanding on the loan. Therefore, secured loans are much safer for lenders.

What is a mortgage?

Security for a loan

Mortgages in common parlance.

If the land is registered, the only method possible is a charge by way of legal mortgage (s 23 LRA
2002).

The “mortgagor” creates the mortgage over the property in favour of the “mortgagee”

A legal mortgage must be created by deed (s 52(1) LPA 1925).

Types of mortgage include:

a) Repayment
a. A certain amount of money is borrowed, and the interest over the agreed
term/tenor of the mortgage is calculated on that money. The lender comes up with
a cap with a monthly payment which includes an: element of capital; and element of
interest.
b. This then must be paid by the mortgagor each month. At the end of the term, the:
i. property belongs to the mortgagor;
ii. whole loan has been paid off, including both:
1. the amount that was borrowed; and,
2. the interest on that amount during the term of the mortgage.
b) Interest-only
c) Buy-to-let
d) Offset
e) Sharia or Islamic

Previous ways of creating a legal mortgage under s 85 LPA 1925:

- a lease for a term of years absolute (Also known as a freehold lease)

- a charge by way of legal mortgage.

PROTECTION OF LEGAL MORTGAGE

Registered Land – register on the charges register

Unregistered land – creation of a mortgage is a trigger for first registration

Mortgages by companies – register at Companies House

 To bind a future purchaser or mortgagee.

if the mortgage is protected, it will bind future owners and lenders. So, the way that a mortgage is
protected, is to put it on the charges register of the property affected, a legal charge appears in s.27
Land Registration Act 2002. So, it's a REGISTERABLE DISPOSITION. It’s one of those interests which
need to appear on the register to bind subsequent buyers. Because it appears in s.27 Land
Registration Act 2002, it needs to be registered to be legal in the first place

REMEDIES AVAILABLE TO THE MORTGAGEE IF THE MORTGAGOR DEFAULTS

The legal date for redemption is the date on which the right to ask for repayment of the mortgage
arises.

The first thing you've got to check is that the lead legal date of redemption has passed, as most
remedies depend on this having passed and it's typically on the date of the mortgage. But if the
mortgage doesn't state when the legal date of redemption is it's normally about a month after the
date of the Mortgage.

Remedies for recovering mortgage arrears:

- debt action
o taking legal action/suing for the money
- taking possession
o “before the ink is dry on the mortgage”. Physical possession may need a court order
to avoid criminal liability under s 6 Criminal Law Act 1977. Tenanted property, direct
the tenants to pay the rents to the mortgagee
o “selling with vacant possession” seller wants to take possession so they can sell it
without anyone living in it
o Quote is from: 4 Maids v Dudley Marshal Properties
 s36 Administration of Justice Act 1970 as amended by s8 Administration of
Justice Act 1973
o First National Bank v Syed 1991
Duty to maintain and take care of the property.

Duty to take account of the property -in relation to excess profits that need to be returned.

Duty to maximise income and act with due diligence.

If they fail in this duty of diligence, and fail to make as much money as they could have done
they will have to account to the borrower for this lost profit.

Court has the power to adjourn/suspend proceeding or postpone possession.

The court can do so for any period it thinks reasonable – so it’s a completely discretionary
power.

Even where the lendor can show it has a legal right for possession, the court still has the
power to not oblige it

The court will usually look to protect the borrower, particularly in the context of a residential
property and where children are involved. The court can use the time all the way through to
end of the mortgage tenor.

For the court to exercise this power, there has to be a reasonable prospect for the borrower
to be able to repay (not just the amount), but the (accumulated arrears) interest to.
Bottom line – if the mortgagor is unable to repay the mortgage, the court will issue an order

- appointing a receiver
o power to appoint must exist (s101(1)(iii LPA 1925), have arisen (legal date of
redemption) and become exercisable (103 LPA 1925). Appointment must be in
writing.
 Receivers are appointed by mortgagees
 The receiver is an agent of the borrower
 Governed by mortgage and laws of agency
 Actions of receiver bind the lendor
 Receiver charge commission
 Mortgage by Deed implies a statutory power to appoint a receiver s.101(1)
(iii) LPA 1925
 The power must have ARISEN and BECOME EXERCISABLE

Remedies for bringing the mortgage to an end:

- Foreclosure
o the action of taking possession of a mortgaged property when the mortgagor fails to
keep up their mortgage payments
o vests ownership of the mortgagor’s property in the mortgagee: This can be done
regardless of how much money is left on the mortgage as compared to the property
value.
o two stages of court order:
 Interim order; and,
 final order/order of foreclosure absolute
o the Court’s discretion to allow the borrower to redeem
o s 91(2) LPA 1925 – the power to order a sale
- sale
o the existence of a power of sale – s 101(1)(i) LPA 1925
o the power must have arisen (legal date of redemption) and become exercisable – s
103 LPA 1925
 Legal date of redemption as passed; it is a month after it has passed
o Whether the power of sale is exercisable: s103
Or express “no payment of interest”
o Protection of a purchaser – s 104 LPA 1925
o Distribution of the proceeds of sale – s 105 LPA 1925

PRIORITY OF MORTGAGES WHEN THERE IS MORE THAN ONE MORTGAGE SECURED ON THE
PROPERTY

The problem.

The priority rules where the property is registered and the mortgage is legal.

Only concerned about the priority rules as applied to REGISTERED LAND and LEGAL MORTGAGES!!!!
The order of entry on the register of title – s.48 LRA 2002.

Order of priority is determined by the order of registration…

Sometimes the chronological set of creation is NOT the same as the chronological set of creation

Negative equity: property is worth less than amount of loan that has to be repayed.

If you have a third party right that is higher than the mortgage whoever owns it has the priority.

PROBLEM SOLVING STRATEGIES

Remedies:

1. Identify the lender’s aims. Does it just want to recover arrears or does it want the entire loan
repaid? Select only relevant remedies on the facts provided.

2. For each remedy you have chosen to discuss, check that the remedy is available to the mortgagee.

Priorities:

1. Identify the type of interest or estate.

2. Check that it has been created properly using the formality rules (so whether it is legal, equitable
or statutory).

3. Produce a timeline to determine whether the interest or estate has been created before or after
the mortgage in question.

4. In registered land:

;rights created after the date of registration of the mortgage without the mortgagee’s consent will
not bind the mortgagee or any buyer from the mortgagee;

rights created before the mortgage will bind the mortgagee and any buyer from the mortgagee if

the interest is registerable at the Land Registry and it is registered by the date of registration of the
mortgage;

the interest is protected by Schedule 3 of the LRA 2002 and it is in existence by the date of creation
of the mortgage.

s.1 (1)(b) equitable interest capable of being legal

If bank sells, you have to consider what happens to the money.