Property: Mortgages and Undue Influence

Creation of mortgages

Legal unregistered land: LPA 1925 - Demise for a term of years absolute (conveyance for a set number of years) or charge by way of a legal mortgage.

Legal registered land: LRA 2002 – Charge by way of a legal mortgage.

Equitable: insufficient formality; e.g. deed.

IF THERE IS NO WRITING AT ALL THEN THE MORTGAGE CANNOT EVEN BE EQUITABLE.

MORTGAGE TRIGGERS FIRST REGISTRATION.

Mortgagor’s rights    

                     

Distinguish the equity of redemption from the equitable right to redeem. ‘Equity of redemption’ is the bundle of rights in relation to the land, including the right to redeem. The ‘equitable right to redeem’ is the right to claim one’s own land by fully paying off the money due. At law this was harsh and would only be permitted on one specific date; at equity this is allowed anytime before or after the redemption date.

There can be no clog or fetter on the right to redeem but it may be restricted, modified or postponed. In Byrne it was postponed for 40 years on freehold land which was acceptable.

Right to not be subject to unreasonable restraint of trade; as demonstrated in Esso Petroleum v Harper’s Garage where there was a solus agreement to only sell the lender’s products for 21 years. Was void but 5 years would be acceptable.

Any collateral advantages for the mortgagee must not be a clog or fetter. Bradley established that any advantages will cease when the mortgage is redeemed. Although Kreglinger was the exception, in which the agreement to sell animal skins only to the lender was deemed independent of the mortgage and therefore continued after redemption. Dabrah concluded that an unconscionable term would not apply – where a provision stated that the interest rate, upon default of payment, would rise from 7% to 57%!

Mortgagee’s rights      

                  

Possession – the right exists as soon as the mortgage is made as established in Four Maids v Dudley Marshall, and before the mortgagor defaults on payment, as per Schindler. For possession, the mortgagee will need a court order (unless the property is unoccupied or the mortgagor goes willingly). Norgan established that the court may adjourn proceedings to give the mortgagor a chance to pay.

Sale – the power for sale arises under s.101 LPA and is exercisable under s.103 LPA. The mortgagee must be able to prove that the mortgage was created by deed, that money is due and that the power to sell isn’t included by deed. Furthermore, there must be either: a 3 month default on payment, some other interest 2 months in arrears, or else a breach of another provision.

The mortgagee must sell in good faith, not to himself. Cuckmere established that he should attempt to sell for the best possible price.

Appoint a receiver – person who collects the debt money.

Foreclosure – harsh rule which extinguishes the right to redeem.

Undue influence  

          

May be ACTUAL or PRESUMED.

Was the mortgage to the claimant’s manifest disadvantage? The Aboody case concerned a woman who agreed to use her house as surety for her husband’s business loan, which gave the company a good chance at success. Was not to her manifest disadvantage at the time she signed. Pitt has now clarified that undue influence can still occur even where the agreement wasn’t to the claimant’s manifest disadvantage. It just helps their case if it was disadvantageous.

Did the lender ensure that the claimant knew the nature of the mortgage and received independent advice? In O’Brien, the bank manager had left instructions at the local branch, stating that the wife must be told the full extent of the liability and must be advised to seek independent advice, the clerk failed to do this. (The wife’s claim for UI failed because she was used to dealing with financial manners, but succeeded with a claim of misrepresentation).

RBS v Etridge – the lender has a duty to:

                                1) Communicate with the claimant

                                2) Ensure the claimant gets an independent solicitor

                                3) Provide the solicitor with the claimant’s financial information

                                4) Tell the solicitor of any concerns of undue influence

                                5) Ensure the solicitor explains the nature and implications