S5 – MORTGAGES
Concept of the Mortgage
Nature and Purpose
Contract between borrower (mortgagor) and lender (mortgagee) that functions as security for debt and
grants a proprietary interest in the land to the lender (mortgage is ‘secured’, enforceable against the
land). Mortgages fund 90%+ small businesses; 31% of houses – essential to economy.
In Barclays Bank plc v O’Brien (1994), Browne-Wilkinson noted the importance of balancing protection
of the vulnerable (eg “the wife … threatened with the loss of her home”) with the important public
interest of ensuring wealth tied up in houses does not become sterile – if occupiers’ rights too strongly
protected, institutions will not accept homes as security and it will reduce flow of capital.
S 1 LPA 1925 – a mortgage is capable of existing as a legal interest.
Aspects of a legal mortgage
Mortgagor sells interest in the land and grants proprietary interest to mortgagee; in registered land, a
legal mortgagee is a purchaser for valuable consideration under RD for purposes of priority (s 30 LRA).
Right to redeem
Mortgagor must be entitled, once debt repaid, to recover the property free of the charge (the right to
redeem). There is a contractual right to redeem (typically 6 months from mortgage grant) and an
equitable right to redeem (exercisable regardless of contract terms). Contractual date is relevant for
triggering mortgagee’s available remedies; important for limitation periods.
Equity of redemption
“The right to redeem is … an equitable estate or interest in the property mortgaged” (Lindley, Santley v
Wilde (1889)) (proprietary right!).
Since 1925, the mortgagor has retained the legal estate (used to actually convey title on mortgage with
provision for reconveyance); ‘equity of redemption’ is used to refer to the totality of the rights retained
by the mortgagor (mortgagor’s estate as burdened by the mortgage). Equity of redemption is a
proprietary right which can be sold or transferred; new mortgages can be granted out of it.
Creating a Legal Mortgage
Pre-2003
Before 1926, legal mortgage was created by conveying the fee simple estate (or other property –
leasehold, equitable interest) to the mortgagee, with mortgagee re-conveying when debt was repaid. L
could keep land if B failed to repay on date stipulated (the legal date of redemption), but equity
intervened entitling B to reconveyance when the sum was paid in full. While mortgaged, B had no
remaining interest to mortgage.
From 1926 until LRA 2002 entered into force, a legal mortgage was created by a long lease of property
to the lender or “charge by deed expressed to be by way of legal mortgage” (LPA s 85(1)). 85(2)
provided mortgage could not be created by entire interest – attempt converts to lease for 3000 yr.
Concept of the Mortgage
Nature and Purpose
Contract between borrower (mortgagor) and lender (mortgagee) that functions as security for debt and
grants a proprietary interest in the land to the lender (mortgage is ‘secured’, enforceable against the
land). Mortgages fund 90%+ small businesses; 31% of houses – essential to economy.
In Barclays Bank plc v O’Brien (1994), Browne-Wilkinson noted the importance of balancing protection
of the vulnerable (eg “the wife … threatened with the loss of her home”) with the important public
interest of ensuring wealth tied up in houses does not become sterile – if occupiers’ rights too strongly
protected, institutions will not accept homes as security and it will reduce flow of capital.
S 1 LPA 1925 – a mortgage is capable of existing as a legal interest.
Aspects of a legal mortgage
Mortgagor sells interest in the land and grants proprietary interest to mortgagee; in registered land, a
legal mortgagee is a purchaser for valuable consideration under RD for purposes of priority (s 30 LRA).
Right to redeem
Mortgagor must be entitled, once debt repaid, to recover the property free of the charge (the right to
redeem). There is a contractual right to redeem (typically 6 months from mortgage grant) and an
equitable right to redeem (exercisable regardless of contract terms). Contractual date is relevant for
triggering mortgagee’s available remedies; important for limitation periods.
Equity of redemption
“The right to redeem is … an equitable estate or interest in the property mortgaged” (Lindley, Santley v
Wilde (1889)) (proprietary right!).
Since 1925, the mortgagor has retained the legal estate (used to actually convey title on mortgage with
provision for reconveyance); ‘equity of redemption’ is used to refer to the totality of the rights retained
by the mortgagor (mortgagor’s estate as burdened by the mortgage). Equity of redemption is a
proprietary right which can be sold or transferred; new mortgages can be granted out of it.
Creating a Legal Mortgage
Pre-2003
Before 1926, legal mortgage was created by conveying the fee simple estate (or other property –
leasehold, equitable interest) to the mortgagee, with mortgagee re-conveying when debt was repaid. L
could keep land if B failed to repay on date stipulated (the legal date of redemption), but equity
intervened entitling B to reconveyance when the sum was paid in full. While mortgaged, B had no
remaining interest to mortgage.
From 1926 until LRA 2002 entered into force, a legal mortgage was created by a long lease of property
to the lender or “charge by deed expressed to be by way of legal mortgage” (LPA s 85(1)). 85(2)
provided mortgage could not be created by entire interest – attempt converts to lease for 3000 yr.
