Mortgages Essay PDF

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With reference to the mortgagee’s (lenders) rights and remedies, how successfully does the law of mortgages currently balance the legitimate interests of the lender and borrower? What reforms (if any) do you think might usefully be made? In this essay, I aim to discuss the legitimate interests of the lender and the borrower and how successfully the law aims to balance them. as lenders and borrowers both have an interest in the same property, they have different rights and remedies bestowed upon them. additionally, I will use scholars and academic articles to reinforce my point of view and contradict, and also providing relevant reforms for this area of law. Lenders are usually an established financial institution such as banks, who provide borrowers with a loan, to help them pay instalments towards their mortgage. Lenders usually provide an interest on top of the mortgage payments, in order to profit from handing out loans. The lender has the power to sell the property, if the borrower fails to pay mortgage repayments or breaches any of the mortgage conditions. Sir Donald Nicholls V-C in Palk 1993 stated that a mortgagee does owe some duties to the mortgagor and can sit back and do nothing. But if he does take steps, common law and equity alike have set bounds’. However, many argue that there is an inequality of bargaining power between the borrower and the lender, with the lender usually being a wellestablished institution with a good financial standing as opposed to the borrower usually being one person/ two persons. This can lead to exploitation, but Parliament and equity have intervened to shield the borrower from this. A mortgagor has the right to take possession of the property ‘as soon as the ink is dry’ as stated by Harman J in Four Maids v Dudley. This has met with some criticism as the mortgagee may have done nothing wrong, but is still losing their security. Similarly, despite this statement being very much the law, it fails to consider the practical safeguards in taking possession of the land. For example, taking possession of a mortgaged land which is subject to certain duties as in the case of Quennell v Maltby 1979, where it was necessary for the mortgagee to seek possession in a bona fide way- to act in good faith. Lord Denning explained, ‘a mortgagee will be restrained from getting possession except where it is sought bona fide’. In this case, possession was denied as the wife was acting on behalf of her husband to oust the current tenants, which he couldn’t as they had statutory rights. Martin Dixon claims this approach is outdates, due to the fact it has been around for many years, but is not referred to by recent cases, showing its ineffectiveness. In 2011 an updated version of the ‘pre action Protocol for Possession Claims’ was published to ensure the mortgagees, took possession of properties in a justified manner, by providing the mortgagor with the correct information and giving reasons for their actions.

Moreover, the lender can also take possession under s36 of the AJA 1970. This allows the courts to delay the payment process, as long as it can be established the payments can be made in a ‘reasonable time period’. For example, in Cheltenham v Norgan 2006, the reasonable period’ was seen to be the duration of the mortgage. Therefore, of the mortgagors can prove that this is enough time to make the mortgage payments, the courts will be flexible and sympathetic in

preventing possession. For s36 to apply, firstly the property has to be a dwelling house. Secondly, the possession must be sought by the lender. In Ropaigealach, the Court of Appeal stated that possession couldn’t be made as the mortgagee hadn’t sought possession. Also as they had peacefully possessed the property, when the occupiers weren’t present, they were not criminally liable under s6 of the Criminal Law Act 1977. Thirdly, there must be reasonable time limit imposed on the mortgagor to repay the payment. This is usually the duration of the mortgage, as discussed above. Finally, the courts will postpone possession if in that reasonable time period, the mortgagor can prove he can pay ‘any sums due’. This provision is ambiguously and obscurely drafted, hence Parliament responded with the legislation of s8 of the AJA 1973, for any sums due to mean a payment of arrears, which was easier to comply with. In terms of remedies, the primary remedy a mortgagee can use is sale. This enables the mortgagee to put the house for sale, if the mortgagor has failed on his payments. For this to satisfy, the mortgagee must have an express or implied power of sale. the LPA divides itself when the power of sale arises and when it is exercisable. S101 of the LPA states power only arises if not excluded by the deed and s103 states it is exercisable if the borrower has been given a notice requiring payment and nothing has been done in 3 months. Secondly, the remedy of foreclosure could be referred to by the mortgagee, however this is unlikely as it is a cost intrusive remedy. Its also very harsh for the mortgagor as it confiscates him of his property, therefore the courts prefer to stay away from this remedy. This remedy is not preferred as it not only requires a court order, but is less favourable towards the mortgagor. For emxpale, the case of Target v Clothier 1994, displayed the courts are more likely to delay possession if they believe the mortgagor himself can sell the property for a higher price. The final remedy a mortgagee can use is to appoint a receiver. They have no contractual obligation and cannot be chosen or dismissed by the mortgagor. Their job consists of managing the property and to act in good faith to ensure the property is well looked after (Medford v Blake). In terms of the interests of the mortgagor, it is arguable that the mortgagor remains the ‘true owner’ of the land as he enjoys equity in the property. One of the mortgagor’s rights is the legal right of redemption. Once a mortgage has been created, there will normally be a contractual date set for repayment of the loan, however this is limited as in common law, if the mortgagor fails to pay on the date of redemptions then he has to pass his land to mortgagee and will be sued. The mortgagor also has the equitable right to redeem, which is the most significant, also known as the clogs and fetters approach. This allows the discharging of the mortgage from the land, through equity. Cases such as Jones v Morgan 2001 and Fairclough v Swan Brewery argue that any clause attempting to remove the right to redeem from the mortgage will be void. In Fairclough, Lord Macnaghten argued that the contractual right to redeem was void as it made the equitable right to redeem illusory. A confusing piece of law has led criticism such as Jones v Morgan stating that the clogs and fetter approach should be abolished or amended. There are statutory provisions in place such as protections under the Financial Services and Markets Act 2000. This helps with regulating mortgage contracts to ensure fair treatment and transparency. Consumer welfarists favour this approach as it doesn’t give way to unfair exploitation, as the vulnerable

parties intentions are being considered. Similarly, under the Consumer Credits Act 1974 +2006, those mortgagors with positive equity can keep borrowing and this is designed to protect borrowers and attack unfair credit agreements to limits interests. Various reforms and proposals have come up as a response. Two governmental proposal called the mortgage rescue scheme in 2009 which enabled mortgagors with arrears to allow a social landlord to obtain a full or partial equity stake in their home. The second proposal called The Homeowners Mortgage Support Scheme (SMI), also in 2009 permitting mortgage owners who couldn’t pay their interests, to suspend payment for two years. Wood 2009, stated that although these reforms were very modern and helpful in taking care of mortgagor’s interests, it failed to actually do so. In July 2009, it was reported that only 16 mortgagors were supported under the SMI scheme. And only 92 mortgagors had been helped under the first scheme. Even though governmental proposals are essential in amending the law, they need to be actioned with finance and responsibility, so mortgagors can benefit in the right way.

Human rights activists say the mortgagees right to possession violates article 1 of the ECHR, ‘the enjoyment of one’s possessions. S. Nield argues that this right des infringe article 1 as well as article 8 because even though repossession is needed to repay the loan, the way in which repossession is sought breached human rights. He also argues that the right of possession conferred by s87 LPA is incompatible with the HRA, and thus should be amended. In the case of Horsham v Clark, human rights were dashed, when the mortgagors claimed that the mortgagee's sale of their property to a third party and the subsequent claim for possession breached various Convention Rights under the HRA, with primarily article 1 being breached. However, a breach in this article was rejected by the courts. In 2010, a private member bill ‘The Secured Lending Reform Bill’ was presented to Parliament, calling for an end to mortgagees rights to peaceable re-entry and that when going to possess a property, the mortgagor is given adequate notice to prepare. Additionally, the Bill introduced a new power for the courts to vary the terms of any mortgage including interest rates and things like payment schedule. Moreover, an enlargement of powers should be given to s36 AJA for applications on property to include all properties, not just dwelling houses. However, the Bill was not confirmed and has still to be revived for any changes to the law to be taken. To conclude, I do believe that mortgagees have more rights and remedies available to them as opposed to mortgagors, however, there are certain safeguards are in place to ensure the mortgagor, who is usually in the less financially stable, is protected wither by statute provisions or through legal or equitable provisions. With mortgagees, they have a greater power as they are in a vulnerable position if they are suing a mortgagor who hasn’t paid their mortgage payment as it means they are losing money. However, it is easier for big institutions such as banks to manipulate the less favourable parties. Through remedies, there are many notable ways mortgagees are able to

ensure their rights are exercised and they are protected. For example, an order of sale enables the mortgagee to sell the property to another, therefore taking possession. on the other hand, remedies are also available to the mortgagor such as a right to redeem if the redemption date has passed. Reforms such as bills and initiatives such as SIM were available to look after mortgagors’ rights, however they were never passed....