Mortgage Essay - Good for Extra Reading PDF

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To what extent do the rights of a mortgagor under a legal mortgage provide sufficient protection for the borrower? [Mortgage] Answer outline 1) the nature of the mortgagor’s rights (the legal right to redeem, 2) the equitable right to redeem and the equity of redemption); 3) the doctrine of clogs and fetters (options, collateral advantages, oppressive terms, unconscionable conduct, Jones v Morgan (2002)). The mortgage is one of the most versatile and unique of property law concepts. It is, on the one hand, a simple contract of loan between lender and borrower and, on the other, it creates a valuable and powerful proprietary right in land. It is a concept governed by con- tract law and property law and the different philosophies of each can sometimes cause confusion and difficulties. In the normal course of events, a legal mortgage of a registered estate will be created by the execution of a legal charge by way of mortgage: s.23 of the Land Registration Act 2002. This is deemed to be the creation of a proprietary interest under s.87 of the Law of Property Act 1925 and has the same effect as if the mortgage was created by the old method of demise. This means that the mortgagor retains their interest in the land subject, of course, to the rights of the mortgagee. As the mortgage is also a contract of loan, there are stipulations relating to the repayment of the loan and certain remedies that the mortgagee may pursue in the event of default on the loan. However, the mortgage remains at all times security for a debt and this means that the mortgagor does have a considerable degree of protection, both of their interest in the land and in respect of their position under the loan contract if they repay the loan. As a matter of contract, the mortgagor has a contractual right to redeem on the date specified in the contract. Traditionally, this was six months from the date of the mortgage, but may be at any date specified by the parties and will often be later in instalment mortgages. At one time, if the mortgagor did not redeem on this date, they lost their security even though redemption could have been made at a later date, but now equity allows redemption after this date, on payment of principal, interests and costs (Thornborough v Baker (1675)). This is the ‘equitable right to redeem’ and, without doubt, is a valuable part of the mortgagor’s protection under a mortgage. In fact, the equitable right to redeem is just part of the wider rights that the mortgagor has under the mortgage. In equity, the mortgagor is protected by the equity of redemption. This equity of redemption represents the sum total of the mortgagor’s rights in the property: in essence, the residual rights of ownership that the mortgagor has, both in virtue of his paramount legal estate in the land and the protection that equity affords them (Re Sir Thomas Spencer Wells (1933)). The equity of redemption is valuable in itself for it represents the mortgagor’s right to the property (or its monetary equivalent) when the mortgage is discharged or the property sold. In fact, on subsequent mortgages, the second and third lenders are able and willing to grant further loans precisely because the mortgagor has this valuable right. The inherent quality of the equity of redemption is demonstrated by the fact that equity will intervene to protect the mortgagor and their equity of redemption against encroachment by the mortgagee: Jones v Morgan (2002). As noted above, equity regards the mortgage as a loan, which can be redeemed, and not as an opportunity for the lender to acquire the mortgagor’s property. This protection manifests itself in various ways. First, it is a general principle that a mortgage cannot be made irredeemable: it is a security, not a conveyance, and the right to redeem cannot be limited to certain people or certain periods of time (Re Wells). However, a provision postponing the date of redemption may be valid where the mortgage is not otherwise harsh and unconscionable, so long as the right to redeem is not made illusory (Knightsbridge Estates v Byrne (1939); Fairclough v Swan Brewery (1912)). Again, a provision in a mortgage that provides that the property shall become the mortgagee’s or which gives the mortgagee an

option to purchase the property is void (Samuel v Jarrah Timber (1904); Jones v Morgan). The rationale is that the mortgagor needs protection when negotiating for a loan, often being in a vulnerable position. Thus, an option to purchase given to the mortgagee in a separate and independent transaction can be valid, as not forming part of the mortgage itself (Reeve v Lisle (1902))....