Seminar 6 - Mortgages - Land law notes PDF

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SEMINAR 6: MORTGAGES Reading Thompson, Modern Land Law, chapter 11 (omit pp. 391 - 402 and 432 - 433) Bevan, Land Law, pp.532 – 551 (digitised copy available via Online Reading List on Canvas) Cowan, Fox O’Mahoney and Cobb, Land Law, Palgrave Great Debates in Law, chapter 10 Cheltenham & Gloucester BS v Norgan [1996] 1 All ER 449 Ropaigealach v Barclays Bank [1999] 3 WLR 17 Kreglinger v New Patagonia Meat Co [1914] AC 25 For further optional reading please see the lecture outline Questions for discussion in your independent learning group: 1. Watch Video 10: The case of McDonald v McDonald [Available on Canvas]. What were the real issues behind this case? 2. ‘Several people ended up losing their homes when arrears could not be settled… Losing their home usually resulted in them being made homeless unless they found alternative accommodation in time.’ The Experiences of People in Housing Debt, Shelter Policy Library, March 2016, 15. With reference to relevant legislation, case law and protocol, discuss whether the current law provides sufficient protection for borrowers who fall into arrears with their mortgage payments. (2017/8 exam question) Questions for seminar discussion: 1. Derek purchased Bellharbour in 2015 with the assistance of a mortgage of £100,000 from the Isle of Wight Building Society. The property is now worth £200,000 and the outstanding mortgage is £91,000. Derek married Alice in 2016. Alice moved into the property and started to contribute to the mortgage payments. Derek suffers from ill-health and is unable to work or look after the children. He resigned from his job in 2018 and has not worked since. Alice is the sole earner and pays the mortgage. She juggles work with childcare and childcare costs. Some months there is enough money to pay the mortgage instalments but she misses payments in other months. Arrears of £5,000 have built up. Alice is confident that their financial situation will improve when their youngest child starts nursery school next September. Alice’s brother has mentioned that he might be able to help out with some of the payments if the ‘worst came to the worst’ and the house was about to be repossessed. Derek feels unable to explain the situation to the Building Society and the Building Society is reluctant to deal with Alice because she is not a party to the mortgage. The Building Society has applied for a possession order. Alice seeks your advice. She asks you; ●

Whether the Building Society are likely to obtain a possession order.

1. Identify is there is negative equity or not: here there is not because the property now is worth enough to cover the debt. 2. The lender has an inherent right to possession (Four Maids Ltd v Dudley Marshall [1957]) it is hypothetical but must be mentioned, but they must: a. Take reasonable care as to the state of the possessed property, according to Palk v Mortgage Services Funding Plc [1993] b. Account to the mortgagor for any income or profits that could have been received, as opposed to income actually received, according to White v City of London Brewery Co (1889) c. Only seek possession in order to protect its own interests, a requirement which the courts may look behind a legal relationship to assess, according to Quennell v Maltby [1979] d. Ropaigealach v Barclays Bank [1999]: in residential cases, the lender will always go to court to seek repossession. 1. Now is time for Derek to repossess: a. Applying s36 AJA 1970 AND s8 AJA 1973 (and s 8 to assess it) : the court will adjourn proceedings for possession for as long as the court believes is reasonable, Derek must prove that he is capable of paying off the mortgage in a reasonable period. i. Applying Norgan (key case) 1. Expectation that before court, both parties must try to find a solution: the lender must show they tried to find their way out of the situation. a. Here? It has not happened. 2. Norgan said that reasonable time was the rest of the term of the mortgage. a. Are the courts really applying Norgan? They have been not going beyond 5 years. Practice is much more flexible. b. A ‘reasonable period’ was more sensibly defined by First Middlesbrough Trading and Mortgage Co v Cunningham [1973] as the remaining mortgage term. This period of time is only the starting point though, according to Cheltenham and Gloucester Building Society v Norgan [1996], and originally hinted at in Royal Trust of Canada v Markham [1975]. 3. In theory they can not repeatedly come back to court with a suspension order. If derek fails to comply with the condition the courts say, then the building society can ask for the order to go back to active. ii.

What proof do they have? Need to provide the necessary information: The burden is on Derek to prove he will be able to pay back. 1. There must be definite evidence from the job.

2. Possibly a confirmed statement from the brother would be good, maybe a deposit to reduce the arrears? 3. IT SHOULD NOT BE VAGUE, THEY NEED CLEAR INFO. 4. Are the difficulties temporary? Maybe alice, but derek has a permanent thing maybe. 5. How much security have they got? The equity of the property is really high so that is going to be very helpful. 6. We know that ‘Alice is confident that their financial situation will improve’ but in the case of Hastings & Thanet Building S v Goddard [1970], a hypothesis was not enough. This could be distinguished because it is certain that the kid will start nursery. 7. Is Alice party of the mortgage? a. They are married but she is not part of the mortgage. b. s 65 Family Law Act 1996: If there is a married couple, but a mortgage is only in the name of one of them, then the other spouse can be made a party for repossession proceedings. c. The other way you can proof her ownership is that she has been paying the mortgages, which would mean she has a beneficial interest. 8. Alice needs a pause until september: a. Bristol & West BS v Ellis and Ellis (1997)30: here the borrower wanted a rest period of 3-5 years, if was not accepted because of the lack of equity, but here it could be distinguished. i. Problem: s 36 says they need gateway (they can pay now) and then the court can make arrangements for the repayment of the arrears. Answer is going to go back to the amount of evidence that they can bring. ●

If the Building Society does take possession when and how the house will be sold. 1. When does the power of sale arise and, once arisen, when is that power exercisable? 2. What is the effect of the sale and how are the proceeds of sale applied? 3. To what duties are the mortgagee subject on sale? 1. Has a power of sale arisen? S. 101 LPA 1925 a. What duties are there in the building society? They must make sure that the property is sold at its right market value. (Cuckmere Brick Co v Mutual Finance [1971]; China & South Sea v Tan Soon Gin [1990])

b. Must be careful on who they sale it too (they cannot sell it to themselves) c. The mortgage was made by deed s. 101(1)(i) LPA 1925 d. The deed contained no provision excluding such a power s.101(4) LPA 1925 e. The mortgage money has become due s. 101(1) LPA 1925 2. Is the power of sale exercisable? S. 103 LPA 1925 – one of these conditions must be satisfied: i. The mortgagor remains in default 3 months after service by the mortgagee of notice requiring payment: s. 103 (i) LPA 1925 ii. The mortgagor is 2 months in default in the payment of interests under the mortgage: s 103 (ii) LPA 1925 iii. The mortgagor has breached another term of the mortgage other than as to payment of the mortgage monies or interests: s. 103(iii) LPA 1925 b. The mortgagee has duties in the conduct of the sale and must account for proceeds under 3. The surplus will go to the borrower S. 105 LPA 1925 a. Once sold, how are the proceeds to be divided up between the relevant parties? i. To discharge any prior encumbrances including any prior mortgage. ii. To discharge the costs of sale of the mortgaged property. iii. To discharge the sums owed to the mortgagee which sold the property. iv. Any balance remaining to be paid to any subsequent mortgagee and, if none, to the mortgagor. 2. What is the ‘clog on redemption’? How has the development of this doctrine hindered or helped the creation of mortgages? What role should it have in the modern law of mortgages?

1. What is the clog of redemption? a. 2. Has it helped or hindered the creation of mortgages? a. 3. What role should it have? a. 3 areas: ‘No clogs on the equity of redemption’ 1. Attempts to restrict or deny the right to redeem the mortgage 2. Attempts to include options to buy all or part of the mortgaged property (can't write on the property that they have a right to buy the property) 3. Attempts to secure collateral advantages This is can seem very outdated, and it can seem unhelpful. Jones v Morgan is important because is one of the most recent cases: they applied it, but the court did not feel as if it was something that was useful to the law anymore.

It is good that this was law, but now more ppl borrow, so this things are dealt in other ways....