Understanding Mortgages and Land Charges

INTRODUCTION

A mortgage or (‘a charge’) of land is one of the most important interests in land, since land provides the physical and principal base for all human activities. A mortgage is defined as ‘a contract between a borrower (‘mortgagor’) and lender (‘mortgagee’), a security for debt and the grant of a proprietary interest by the borrower to the lender’. Most people nowadays have to borrow money to purchase their first homes, meaning mortgages are likely to affect people’s everyday lives. However, a mortgagee will be unwilling to lend money without sufficient security. It will need to ensure the mortgagee has an asset to claim if a mortgagor fails to repay the money borrowed. . Mortgages fund over 80% of net lending today; around 50.5% of total homes are owner occupiers and the majority are funded by mortgages with an estimated total value of £73.4 billion. People who are on 35,000 pa pay the Max Tax of 40% to find social homes and HAP (HOUSING Assistance Payment) but cannot afford to own their own homes. The interest is among the highest comparing with other states like Denmark which are also in Europe. Currently, banks are not acknowledging the fact that any people have been paying rent for a long time and missed no payment which leads paying more in rent than they would in a mortgage repayment. The UK market was fully deregulated in the early 1980s. During the height of the 2000 credit / housing bubble UK lenders were offering 100/% plus LVR (I.e no deposit) mortgages to first -time buyers. Currently, more people are renting because of expectations of continuing falling prices as well as because of greater in finding mortgages and raising deposits.

Chapter I – THE PRESENT MORTGAGES SYSTEM

Part I- History of the mortgage

This chapter illustrates the fundamental concepts necessary to an understanding of the present system of English law of Mortgages. Historically, the evolution of our present system of land law has taken most of a millennium, resulting of many rules found in the property statutes of 1925 and now in the Land Registration Act 2002. There is further regulation of mortgages provided by Bank of England and Financial Service Act 2016. The English law of Mortgage is one of the most significant forms of credit relationship in the modern society today. However, it is difficult for the courts to maintain a balance between the protection of vulnerable borrowers and the interests of lenders where land remains the most efficient commercial form of security. Historically, before 1926 a legal mortgage was created by the borrower transferring his legal tittle of the land (i.e. the fee simple estate) to the lender until the loan had been repaid. This often had a disastrous effect on the rights of the borrower, as if they were unable to pay back the loan on the stipulated date in the deed (the legal date for redemption), it meant that mortgagor lost all over his rights over the property and the lender would be able to sell or exploit the land for their own benefit, where this could worth much more than actual loan owed. This state of affairs was structured to the advantage of the mortgagee, as explained by the Vice Chancellor in Brown v Cole (1845), ‘If mortgagors were allowed to pay off their mortgage money at any time after the execution of the mortgage, it might be attended with extreme inconvenience to mortgagees, who generally advance their money as investment.’

Part II- The evolution of the modern mortgage

The Law of Property Act 1925 (LPA1925) abolished the traditional method of transferring the borrower's estates in land to the lender and recognised the rights of the mortgagor in equity. Section 85 of LPA 1925 recognised two methods for the creation of mortgages: Firstly, demise for a term of years absolute’, involving creating a very long lease usually 3.000 years. Alternatively, a legal mortgage could be created by a ‘charge by deed expressed to be by way of legal mortgage, which was the preferred form being relatively simple, quick and cheap. In unregistered land a mortgage can still be created by either method, since entry into force of LRA 2003 (13th October 2003) registered title may only be mortgaged by charging the land since. The new form of legal mortgage allowed the borrower to redeem after the contractual date for payment had passed. The contractual right to redeem, typically set 6 months from when mortgage granted, is now a legal fiction only there to trigger legal remedies. The equitable right to redeem is exercisable irrespective of the terms of the contract representing the situation in reality that a mortgage is a loan and the borrower should be able to redeem whenever he has paid back full amount borrowed. The phrase ‘equity of redemption’ is used to refer to the totality of rights retained by the mortgagor, that is, the mortgagor’s estate as burdened by the relevant mortgage’

Part III- Creating a mortgage

A mortgage must be created by charge according to s23 (1) LRA 2002 and as a conveyance in land, it must be created by deed using all legal formalities as required by the Law of property (Miscellaneous Provisions) Act 1989. Therefore legal mortgage must be both: in writing and executed as a deed by the security provider. The case of Bank of Scotland Plc v Waugh shows that where the borrower has a legal interest but has failed to use a charge by deed required under the s1(3) LP(MP)A 1989. The High court decided that the charge was unsuccessful to take a legal estate. In spite of that, the registration had been concluded, and the bank was able to rely on s51 of the 2002 Act to give it effect. In the case of Kinane v Alimamy Mackie-Conteh, the court held that there was an equitable charge of the defendant’s property, even though the claimant relied on an oral agreement for the grant of the charge which therefore did not comply with the s2 (1) formality requirements. The claimant successfully established a proprietary estoppel which overlapped with a constructive trust, as the defendant had encouraged the claimant to believe that the security agreement was valid and binding. Mortgages are one of the proprietary interests recognised in s1 LPA 1925 as being capable of existing as a legal interest This is how a mortgage can take priority, and how it gives security to the lender ; ‘a legal mortgagee is a purchaser for valuable consideration under a registered disposition for the purposes of priority’. The legal mortgage must be completed by registration at law: s.27 (1) and s (27) (2)(f), ‘it will take priority over pre-existing interests in the land that are not protected at the time of registration. Although, a pre-existing interest can be protecting by notice is 'an entry in the register in respect of the burden of an interest affecting a registered estate or charge.' If a charge is not registered, the effect will be that the mortgage will not take effect in law but only in equity, as shown in Barclays Bank Plc v Zarrovabli, where a bank failed to register a charge as required under law LRA 2002 s.51. There are several other ways in which an equitable mortgage will arise in different circumstances, for instance, where a borrower only has an equitable interest the mortgage will only be an equitable mortageg. It is therefore crucial to have an enforceable equitable mortgages under the LPA 1925 s. 53(1)(c) which means that the contract created an equitable mortgages must be in writing. It do not have to be registered at the Land Registry, but if they are it can help protect their priority.

Chapter Ii- The Rights And Protections Of The Mortgagor And Mortgagee

Part I- The mortgagor

The next step to think after having created a mortgage is to know what are the rights and obligations that the borrower and lender have under the English mortgage law and to know what risks and benefits mortgages provide on the both sides. Let us first consider the borrower’s rights, powers and protections. The mortgagor’s rights are protected in two main ways, most importantly in equity, and secondly in contract. As previously outlined, as soon as the mortgage is executed the mortgagor has a totality of rights described as the ‘equity of redemption’ including the rights to redeem, lease and sue. Redemption of the mortgage means simply paying all the debt off so that the land is free from the mortgage; this principle was stated of the judgement of Walker LJ in Browne and applies to all transactions of mortgages. The rights to redeem can be classified in three stages: firstly, from the date of mortgage, secondly contractual date (usually six months later), and thirdly equity of redemption. In addition, it is important to keep in mind that if the borrower breaches of one of the terms of the mortgage deed, they risk losing their contractual rights to redeem; including the possibility to lose their property as well. It is likely that they will forfeit their security under the loan. Despite these strict contractual rules, equity plays the majority part in developing the mortgage laws and luckily for the mortgagor the courts can intervene to set aside the terms of a mortgage in certain circumstances. The background behind this principle the right to redeem is the main purpose of the mortgages, giving certain security to the lender in the event of any payment of the debt. The equity distinction can break down into four separate principles and rules which are: ‘the prevention or postponement of redemption, collateral advantages, unconscionable terms and using the defence of undue influence and mortgages’

Part II- The equitable right of redemption

As we already discussed, the equity right of redemption means ‘the right to repay the loan for the mortgage charge to thereby be discharged from the land’ It can be defined that Equity plays the majority part in developing the mortgages laws and guaranteeing that there are no ‘clogs or fetters’ avoiding equity operations of rights. The doctrine of clogs and fetters is a 19th century doctrine which says that any provision inserted into mortgage bargain which undermines or prevents the equitable right of redemption is void as it goes against the whole idea of the mortgage bargain. Stantley v Wilde [1890] 2 Ch 474, per Lindley MR at pp 474: ‘Any provision inserted to prevent redemption on payment or performance of the debt or obligation was given is what is meant by a clog or fetter on the equity of redemption and is therefore void…a clog or fetter is something which is inconsistent with the idea of ‘security…in the nature of a repugnant condition’ Historically, mortgages were executed in the time when someone were in debt and needed a loan and so unfortunately borrower were often persuaded into the very onerous mortgages terms. Equity therefore played an important role in supervising the mortgage relationship. Nowadays mortgage lending is a routine tool for people to buy their first house, however equity still plays a key role The equitable right of redemption means the processing that release the land from the mortgages and charges extends to all types of transactions described as mortgages. In the case of Jones v Morgan shows that today, any interference with a mortgage term that exclude or restrict the mortgagor’s right to redeem will be void, especially in a unconscionable terms provisions (for example, one to prevent redemption for 100 years). There is debate on the precise extensions to when the courts can intervene in the case of Fairclough v Swan Brewery a term of the mortgage postponed redemption to just six weeks before the end of the lease that represented security for the loan. The legal issue was with the postponement for the redemption rights. The court upheld the claim stating that the mortgagor could redeem at an earlier date and the right to redeem must be not illusory. Where, however, the postponement is not unconscionable but freely agreed between parties, in the commercial context, it will be valid. This is illustrated by the comparison with Knightsbridge Estates Trust LTD v Byrne in which the mortgagor were concerning an early redemption of a mortgage, predicting as result of falling interest rates, arguing that the original term agreed for the payment over 40 years period was void as a clog on the right to redeem. However, per Sir Wilfred Greener MR stated in Knightbridge:

‘equilty does not reform commercial transactions because they are unreasonable’ whereas on mortgages situations likely it is concerned to note that ‘oppressive’, ‘unconscionable’ and ‘unreasonable’ terms are essential things not enforced.’ The court held the clause was valid of the contractual right to redeem as it was a commercial context where the parties received legal advice and were on equal bargaining of power which there wasn’t showing any evidence of oppressive or unconscionable behaviour. Today, the court will be slow to interfere with or infringe upon the party’s freedom to contract. It is common for mortgagee offer a favourable rate interests’ rates to mortgagor who in return agree not to redeem for a fixed rate, and to provide for a ‘redemption fee’ or ‘redemption charge’ if they decide to redeem early. Provided that these fees are agreed, considered and fully explained to the borrower they will be valid and not come into the conflict with statutory protection. However, the clogs and fetters doctrine remains the subject of some criticism by the judiciary in some cases.

Part III- Collateral advantages and unconscionable terms

Equity developed other ways of protecting the mortgagor.

The mortgagor is protected from any deed term from the mortgagee conferring or gaining any collateral advantages. It means that terms having advantages or additional benefit provided to the lender on the mortgage deed will be void. In Noakes the terms including a covenant as mortgagor undertake obligations and making promises to purchase beer even after the full payment of the loan including extra benefits to the mortgagee’s business was dismissed by courts. The agreement must not have any collateral advantages after the mortgagor’s obligations are completed, the state must be as the property was never charged. However, an agreement incorporating a collateral advantage may be upheld where it does not prevent the mortgagor getting his property back as it was mortgaged. In Kreglinger v Patagonia Meat and Storage Co Ltd there was an agreement between the mortgagor and mortgagee to sell the sheep skins to the lenders for five years; two years later the mortgage was redeemed, and the mortgagor claimed to end the sell agreements. The court upheld the original agreement between the parties and allowed the terms to continue after the mortgage was redeemed despite the collateral advantage. Lord Parker’s judgment in Kreglinger explained that a collateral advantage will be ‘struck out’ in the circumstances where: ‘the term is unfair and unconscionable, in the nature of a penalty clogging the equity of redemption is inconsistent with or repugnant to the contractual and equitable right to redeem’ In addition, a mortgage bargain will not be upheld by the court where it is deemed to be ‘unconscionable’. In Esso Petroleum Co Ltd v Harper’s Garage (Stourport)Ltd was a contract case, concerning the restraint of trade though a tying arrangement. The court considered the terms of selling the mortgagee’s petrol for the short period of 4 years and 5 months was valid. However, the period of 21 years was a very longer period and it failed the reasonable and foreseeable an adequate period to restrain of trade excessively, Therefore, the agreements between parties was held void.

Part IV- Using the defence of undue influence and mortgages

Undue influence is an important doctrine, of interest in the law of mortgage when considering mortgagee’s remedies, undue influence is an equitable doctrine for domestic borrowers where equity will intervene and provide a protection for the vulnerable person from exploitation and oppression. A mortgage can be set aside where there is evidence of undue influence misrepresentation or duress ; such vitiating factors render the agreement voidable For instance, Undue influence can be demonstrated where either there is direct evidence of coercive acts (including improper pressure or coercion) or there is a presumption of undue influence in certain relationships involving a particularly vulnerable individual. The most common example is a matrimonial home shared by husband and wife where the husband exerts pressure on the wife in order the wife’s consent to the mortgage, and subsequently the husband default repayments and mortgagee enforce its interest to sell the family home by a court order. In equity, where the party was subjected to pressure and/or duress when the contract was created, on the grounds of undue influence the contract is voidable, and therefore it can be set aside. Presumed undue influence could also arise in many other different circumstances. Undue influence can be split into two classes, as set out in the case of Bank of Credit and Commerce International SA v Aboody . Actual undue influence (‘class 1) is demonstrated by evidence of coercive acts. Presumed undue influence (‘class 2’) arises out of a relationship where one party reposes confidence and trust in the other such that it is presumed that the one of the parties were unduly influenced. Class 2a covers specific relationships that gives rise to an automatic presumption including solicitor and their client, mother and son, medical adviser and patient; trustee and beneficiary, but it does not cover husband and wife in this classification. Class requires evidence on the facts of such a relationship.

Further definition comes in the two landmark decisions cases of Barclays Bank plc v O’brien, CIBC Mortgages plc v Pitt and Royal Bank of Scotland v Etridge (No2) In Pitt case the requirement to show evidences which caused disadvantage to the claimant was removed. In O’brien the case was where a wife signed a mortgagee documentation giving her family home as security for her husband debts. Mrs O’ Brien relied on her husband false representation, whilst the bank in fact did not explain her the implications of the second mortgage at all. The House of Lords dismissed the bank’s appeal and Lord Browne-Wilkinson starting the point of law here saying that the doctrine applies not only for married couples, but also to same sex couples’ cohabitees and stated that the principle remains in need of clarification. However, in order to protect and clarify lender’s obligations, Lord Nichols in Etridge reanalysed the law of undue influence and settled out extensive guidelines of ‘when a mortgagee is put inquiry, and what steps should a mortgagee take to avoid being affected by the undue influence of the mortgagor. In summary, Lord Nichols laid down a guideline Known as the ‘Etridge Protocol’ at paras 50-89 in Etridge for the lenders to follow based on constructive notice wherever one spouse acts as surety for debts of the other. Once the mortgagee is put on enquiry, it will be fixed with notice of the undue influence unless it can show it took reasonably steps to ensure the wife was fully aware of the transaction, including a solicitor holding a face-to-face meeting with the wife to explain the transaction. It will prevent the mortgagee to lose their rights as long they follow the guidelines when the lenders try to enforce their rights to possession. However, if the guideline is not followed by the lender, they will have a risk to lose their security and will have the mortgage set aside if the principles of undue influence can be proved.

Part V- The mortgagee’s right under the mortgage.

In this section, we will consider the position of the mortgagee in this balance exercise. As we will see, the mortgage law protects the lender in number different ways, and it is very important that the law protect the lenders otherwise, the banks and other institutions would not lend the money for individuals if they don’t feel secure to recover the payment for the debt including the interest and related costs. The main benefit for the lender is the rate of interest charged for the money lent; thus, Dixon state that ‘just as the property owner uses the mortgage to liquidate his assets, the mortgage uses the mortgage to capitalise his income.’ the mortgagee’s rights can be achieved from the nature of mortgage in three ways: from the contract agreement itself, or under the rules of equity, or under statute. In relation to the remedies by the mortgagee it will depend in the circumstances of the default of the mortgagor payments of the mortgage, although there are many possibilities available to enforce its charge. The mains ones are: the right to payment under the contract to repossess, to exercise the power of sale, the right to foreclose and the power to appoint a receiver. Moreover, we will see that some of remedies will be recoverable for unpaid interests only, where others for the entire loan including the termination of the borrower’s rights over the property. However, the ones most familiar for the people are the repossess and sale where the bank repossesses the property with the intention to sell it to repay the loan.

Part VI- The right to payment under the contract

Every legal mortgage carries a contractual right of the loan which allows the lender to sue to recover the debt created. The covenant and conditions to repay is in the mortgage deed on the provision that the monies will be repaid with interests, so the lender has an action on the borrowers having an express contractual with the promise to repay the loan. This action is significant where the property is in negative equity (sold for less than total amount owing to lender), allowing the mortgagee to reclaim the remaining balance. owed to it.The right to sue the individual on the contract arises as soon as the legal date for the redemption has passed. The mortgage contract has a statutory limitation period of 12 years under the Limitation Act 1980 in most cases, to recover monies owed. Since 31 October 2014, this has reduced to a 6 years period to recover of interest under the Mortgages Conduct of Business (MCOB). For instance, in Alliance & Leicester Plc v Slayford The husband was in arrears while wife in actual occupation had override interest so mortgagee didn’t have rights to possess. Therefore, Alliance sued the husband on the personal covenant, they made him go bankrupt and used the Insolvency provisions to force a sale of the house. However, in most of the case the reason that the mortgagor fails to repay their mortgage is because they don’t have enough money and therefore suing the individual for payment under the contract would be pointless. Consequently, the main favoured remedies for the lenders is the right of possession and the right of sale the property.

Part VII- The rights to possession and sale

The rights to possession and sale is one of the most important right to the mortgagee when the borrower defaults on the mortgage. The rights to repossess arises as soon as the mortgage is executed (the mortgage by deed) which allows the mortgagee to sell the property including any surplus belongs to the mortgagor. It is subject to the express terms of the mortgage, which commonly provide that a mortgagee is not entitled to possession unless and until the mortgagor is in default. There are two principal reasons that a mortgagee may seek possession, firstly with the intention to sell the property to satisfy the debt and secondly is in order to generate an income whilst managing the land, where it can be used to discharge the borrowers obligation such as loan payments. However, the reality of taking possession of the property today require series of procedures as statutory and common law interventions which always limits on the mortgagee’s right to possession. The immediate and inherent nature of the mortgagee’s right to possession is still reflected in the fact that it requires no court action. However, a possession order is usually sought because re-entry without a court order carries the risk that a criminal offence may be committed. Although, any person who without lawful authority uses or threatens violence for the purpose of securing entry into any premises for himself is guilty of an offence provided that (a)there is someone present on those premises at the time who is opposed to the entry which the violence is intended to secure and (b)the person using or threatening the violence knowns that is the case.Mortgagees that seek possession must apply first for a court order for the possession, otherwise it will risk of having criminal liability. At the first instance, a mortgagee will be restrained from getting possession, except where the possession is claimed “bona fides” and reasonably for the purpose of enforcing charge. In Quennel v Maltby the Court of Appeal intervened and imposed the duties and limits on the mortgagee’s right to possession. Furthermore, residential properties under statutory jurisdiction to postpone possession under s. 36 of AJA 1970 gives the court a wide discretion to alter or even suspend any order for residential property possession, which applies to both legal and equitable mortgages. However, the Court of Appeal in Cheltenham & Gloucester Building Society v Norgan clarified and outset some important principles to be taken into account, particularly concerning the probabilities of the mortgagor giving the fulfilment to the mortgagee in the future. Such order where mortgagee seeks possession on any matrimonial homes, it is required to serve notice on for the spouse who has registered the occupation rights under the Matrimonial Homes Act 1983, whereas others residential orders for the possession, it is given provisions the Protection from Eviction Act 1977. In the case of Ropaigealach v Barclays Bank Plc [2000] QB 263 illustrated that the property was empty so no danger of criminal sanction- Barclays entered and changed the lock R argued they wanted to postpone repossession under the Administration of Justice Act, but court held they were unable to do this. A key area of conflict is the priorities triangle mortgagees seeking possession of a mortgaged property which is subject to a co-ownership trust as triangle of interests- mortgagee, mortgagor and third party with equitable proprietary interest. Priority rules s29 and Schedule3(2) of LRA 2002 requires wife to show proprietary interest belonging to her at time of the disposition and that she was in actual occupation which was obvious upon a reasonably careful inspection of the land. In Williams & Glyns Bank Ltd v Boland [1981] established that the wife’s interest under a trust of the matrimonial home was capable of being an overriding interest. The Law Commission report 1982- Report No.115 Cmnd 8636 p43-44 warned that decision would cause complications, expenses and delays; greeted with dismay by lending industry and fears it would greatly increase burden of inquiry upon mortgagees and hence the cost of mortgage finance, potentially restricting the supply of borrowing or putting it beyond the reach of ordinary families. But corrosion of high point in Boland might fail to establish a constructive trust, such that she doesn’t have proprietary interest capable of overriding (Lloyds Bank v Rosset) also, fail to establish actual occupation (Abbey National v Cann) where occupation may have been undiscoverable on reasonably careful inspection (Kingsnorth Finance Co v Tizard) and rights overreached if statutory requirements met- payment to at least 2 trustees (City of London Building Society v Flegg).If mortgage is an acquisition mortgage, used to finance initial purchase, impossible to acquire priority- scintilla temporise. (Abbey National v Cann) where a later loan is used to discharge an earlier one, the later mortgage will have the same priority as the earlier (subrogation).

After the mortgagee obtained the possession of the property, the lender next purpose is to sell the property and repay all the debts that the borrower owns. As we have seen the mortgagee has a statutory right to sale and we should keep these statutory separates into two stages. Firstly, the mortgage need to satisfy the three conditions under section 101 of the LPA 1925 where the mortgage ‘has been made by deed’, ‘there must be no contrary provision expressed in that deed’, and the mortgage money has become due, either the date for redemption has passed or a mortgaged instalment fails to be paid. Once the all the conditions are met the power of sale arisen. Secondly, the power of sale must be also exercisable, when any of the three requirements under the s.103 of the1925 act is met. This requires default of repayment for three months after the notice has been served, or two months arrears of interest, or breach of any other mortgage term as to payments of the mortgage monies or interest. In addition the lender as a seller of the property has certain duties, including ‘ a duty to act in a good faith an obtain a true market value for the mortgaged land at the time of the sale.’ In the case of Cuckmere Brick Co Ltd v Mutual Finance Ltd the lender was held liable for the difference in price, as the property was sold at a far lower price than the property valuation. Moreover, there are multiple key duties by a mortgagee in exercising their power of sale, not just good faith but also:(1) Good faith (Medforth v Blake) (2) Duty to act for proper purpose (Downsview Nominees Ltd v First City Corp) and (Meretz Investments v ACP) (3) Duty to take reasonable care to obtain the proper price Cuckmere Brick and Silven Properties (4) Duty to conduct a true sale mortgagee cannot sell to itself, nor a person acting as its agent . If the mortgagee breaches any of his duties in the conduct of the sale, the mortgagor can seek a court order to put the sale to be set aside, recession is a discretionary remedy modern trend only to order where fraud or bad faith on part of mortgagee in Corbett v Halifax Building Society (merely negligence, not bad faith, no recession granted). Remedy more likely to be an order that mortgagee account to the mortgagor and all others interested in the equity of redemption for what he should have received (breach of duty to obtain best price reasonably obtainable at date of sale, Silven Properties)

Part VIII- The power to appoint a receiver

Under LPA s101(1)(ii), the mortgagee has the power to appoint a receiver, exercisable at the same as the power of sale. In Medford v Blake; the receiver will have a duty to act ‘with due diligence’ and to take control of the mortgage property and sell, manage and use the income to repay the loan. In Horsham Properties Group Ltd v Clark concerns appointment by the mortgagee for a receiver. The mortgagee appointed receivers of the mortgage property, the purchaser that bought the property from the receiver claimed possession under section 36 of the AEA, against the mortgagor who become the trespassers in their own home. The mortgagor claimed violation of his rights under the Article 1 of First Protocol to the European Convention on Human Rights Act 1998 of the peaceful enjoyment of their possessions. Moreover, the mortgagor rejected the claim that this contravened any rights under ECHR, the mortgage had proceeded under the contract so the ECHR. However, the rights of the lender to sell the property was an essential aspect of the security.

Part IX- The right to foreclosure

The final, and most powerful, remedy available to the mortgagee is the right to foreclosure, arising as soon as the legal date for redemption is passed. LPA 1925 s88(2), it allows the mortgagee to extinguish the equity redemption, irrespective of the size of the debt including the mortgagor’s contractual obligation to repay the loan; which means that any right to the remaining of the sums owning is ended. However, only the court can order that the mortgagee can take over the entire ownership of the property and become the legal and beneficial owner of the property. Under the s.91(2) of the LPA 1925, permits the court to open a discretion to the mortgagor each is entitled to seek an order for sale in lieu of foreclosure, which it is likely to do it if there is any equity in the property. There are two stages in a foreclose order: foreclose nisi where the mortgagor has a limit of time of six months to provide the full payment of mortgage and foreclosure absolute which will destroy the mortgagor’s right equity redemption and transfers all the title to the mortgagee. However, in Campbell v Holyland shows that an order was re-opened and granted after three months, thus, in a rare circumstances the court will re- open a foreclosure order absolute. Today foreclose seems a dramatic remedy and rarely used in practice.

Chapter Iii- Problems Of Mortgage Laws That Affect People’s Lives

Part I-This area of law is problematical

The mortgage laws related to real property, particularly housing affects most people consistently and directly. It seems far removed from the day-to-day world basis of borrowing and lending. The last hundred years, there is a veritable change in the social role of the mortgage of real property. In the nineteenth century it was mainly a form of a private investment, whereas in the late twentieth century it become one of the main finances founds to facilities the existence of homeownership “property-owning democracy” for the first time for many individuals and families bound to impose a traditional relationship on mortgages laws . Professor Gray observed the changes in the mortgages law in the twentieth century as: ‘quite apart from the role of mortgage finance in facilitating commercial activity the unprecedented availability of mortgage funds… promoted a powerful ideology of homeownership in Britain’ Confusion is caused in this law area in conceptual and practical levels and apparently overlapping people’s lives. We will concentrate on three problematical areas only. The aim in the next sections is to analyses the two specific property problems that impacts in mortgages laws. Firstly, the concern with mortgaged property in trust of family home, secondly, mortgage repossessions and Human Right Act complaints. For more than one century, Lord Macnaghten excellently stated that ‘no one by the light of nature ever understood an English mortgage of real state’. The present law of mortgages seems to be very unsatisfactory for people lives for a long period now. The law has so many features rules providing unclear purposes, lots of cases which turn on narrow with lots of technical distinction, a series of uncoordinated and unproductive legislative interventions, which have been generating further uncertainty in the mortgage’s laws in terms of the interpretation and operation. Many several problems with mortgages laws will be ignored in this analysis, as most notably and arguably the nature of the distinction between mortgages and charges and including mortgagee’s duty to the mortgagor when selling the mortgaged house. Rather, we will focus on the changing backdrop to the mortgage’s cases including legal principles which are in play with mortgagor and mortgagee. The first consideration is contextual in relation with cases that have been decided which reflect in the statutory attempts to regulate the right to possession with a perceived policy to protect mortgagor in occupation of a mortgaged property as a home. Professor Fairest noted that this area of law is problematical, whereas many cases are old, where some still good in law today; however, at the time the case were decided between mortgagor and mortgagee relationship we can see that the property was very different from today. However, the separation of the law doctrine for legal analysis and debates, politics and policies have significant implication for property problems, as some aspects of property regulation as politics and not law

The relationship that people have with housing and property is increasing incomplexity, specifically home-ownership. The statistics shows that UK’s repossession numbers decreased from 1995 until the 2007/2008 financial crises but these number fluctuate on regular basis, although this change aren’t always easy to predict as well. Most of major economic and political events, as global crisis in 2007- 2008 and Brexit from 2016 have a significant impact on the market which can dramatic turning towards inequality with high levels of mortgages and landlord repossessions.

Part II- Mortgaged property in trust of family home

The law of informal acquisition of a beneficial interest the family home under a common intention constructive trust control the gates of property. Apparently, this always involve a crucial question: who owns what? As Law commission have identified: ‘Who owns what? May be very simple to ask, but in a short time the enquirer will find themselves immersed in the off- putting and sometimes obscure, terminology of the law of trust’ Unfortunately, the law of acquisition of interest in the family home debates fairness based in jurisdiction in the property law vs family law. The leading case on authority on acquiring an interest in a sole ownership is Lloyds Bank v Rosset where, a husband and a wife purchased a property together using husband’s family sums. The wife made no contribution to either the purchase price or the cost of renovations. Although, the wife herself carried out with decoration work on an almost daily basis as well with the building work. Subsequently, the husband, without the wife’s knowledge, mortgaged the property and payments were not met and the bank brought proceedings for possession and sale of the property. The concern was if the wife has an equitable interest under a constructive trust which was binding on the bank. Following Abbey National Building Society v Cann according with the relevant date for an actual occupation to protect an interest for the purposes of s. 70(1)(g) of the LPA 1925 she tried to argue that she qualified as an overriding interest pursuant under the old law provision, because she was in an actual occupation of the property. However, it was held that the wife had not been in actual occupation at the relevant time and so her interest did not bind the bank. Also, it was stated that that she did not make any financial contributions, she only helped with physical redecoration of the house which was no discussion or agreement between parties in regarding the ownership of the property. Although, without an express agreement there wasn’t any beneficial interest with the necessary intention to form a constructive trust. In carrying out the renovation work only wasn’t a form of an equitable interest in the property. Rosset case ‘has been widely criticised for the gap between its bright-lines rational principles and the lived experiences of property subjects’ reflecting those in the situation for example with lower earning than the propertied partner in the criterion of financial contribution with a disproportionate importance. In 2002, the law commission realised that ‘the current law discriminates against those who do not earn income from employment’ Fox’ O Mahony suggest that as per the Rosset case; those who make financial contribution should be protected: ‘In which claimants are judged for their conduct against normative expectations that favour acquisitive-individualism over family – communitarianism, self-interest over trust, and the tidy lives of consent, private ordering, and capital investment over non- financial contributions and the messy of family life’ This approach in Rosset excessively narrow permitting to have an asset of an interest only either is an express agreement payments made to the purchase price,

Fox’ O Mahony, observed that the problem of Rosset the duties in respect of properties remains in debate for a better an analytical commitment to certainty, coherence, stability and security.

Part IV- Mortgage repossession and Human Rights

It is impossible to analyse mortgages laws without encountering human rights considerations into our domestic laws, it is remains for us to reflect the significance of human right might have for the development of the modern land law. The remainder of this section will concern the two areas where the land law continues to develop in order to protect vulnerable parties to mortgage transactions as mortgage repossession with the relationship between mortgages laws and human rights. Although, the need to achieve and maintain a proper balance is necessary to compete interests of the mortgagor and mortgagee. For some time now the issue of mortgage repossessions and human rights provide an importance interest in the law of mortgages. As we know at common law when there is a default the mortgagee has the proprietary right to take actual possession of mortgaged property for any purpose, technically if the borrower is in breach of the mortgage agreement the possession will be sought. This would simply leave the borrower homeless to relieve the inconvenience of a mortgage debt. It followed that the lender’s main interest is not in the land itself ‘but rather in securing a financial return on a capital investment, while the borrower concerns in the land and the acquisition of a place to live’

Part V- Judicial discretion

However, several cases decisions as Cheltenham and Gloucester plc v Krausz Cheltenham and Gloucester plc v Booke and Bristol & West Building Society v Ellis and Ellis have caused fundamental questions of some possibilities to extent of court’s jurisdiction to suspend or deny a mortgagee’s right to possession. In Palk Mrs Palk applied for an order to sale the property under the s.91(2) LPA 1925, this would end and stop the mortgage interest charge clock. However, the Court of Appeal ordered the sale and the possession order was suspended. Palk outcome shows the first hope for the mortgagor where the court can re-examine the cases with possibilities to permit an ‘unfettered jurisdiction’ to order to sale of mortgaged property. However, there is no doubt that s. 91(2) of the LPA gives a wide discretion where concerns the among commercial lenders for the mortgagee’s possession rights. In Cheltenham and Gloucester plc v Krausz the analysis from the court didn’t not ended up well as in Palk, the court did not explain why the suspend of possession and sale were possible in the earlier case where a gloss given in Krausz the results was completely different; where the Court of Appeal held that the mortgagor was in negative equity, a mortgagee’s rights take priority and the court had no power to suspend an order for possession unless the mortgagor could show that he was able to make up the shortfall from elsewhere. The decision in Krausz caused uncertainty about this jurisdiction in negative equity circumstances, ‘given vagaries of the housing market which is an uncertainty with substantial implications’. It is clear, that this jurisdiction is not wide but applies only if the conditions are met and, further power is discretionary and may be refused even if they apply. ‘Admittedly, the circumstances in which a court might be prepared to suspend possession and authorise sale by the mortgagor under s. 91 will be unusual’

Part VI- Human Rights

Despite the fact of different measures with the aim of helping households in financial difficulties, mortgagors continue to be struggle with high debt levels and the danger of eviction. The critical provision of Article 1 of the First Protocol proclaims that: ‘every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law’ Therefore, possible protection is given to the mortgagor under article 1 compromise three main rules which are: peaceful enjoyment of property, deprivation of possession and control of possession by the state. However, ‘neither the International Covenant on Civil and Political Rights nor the International Covenant on Economic, Social and Cultural Rights which turned the Universal Declaration into legally binding commitments made any reference to protecting property’. This balancing exercise requires the court to asses the proportionality of measures as against the aims pursued, we can expect an increasing influence of human rights arguments in property if this later vision proves to be accurate. Allen has described that Art. 1 of the First protocol is very conservative element which offers little protection and has little impact in matter of domestic law. These developments have created harsh criticism with emphasis the ability of individuals to exercise their human rights, especially those vulnerable people who is suffer from decreasing access to work and social welfare which reduce the affordability of housing and others basic necessities. For instance, Gray and Gray raise the question of whether ‘the human rights recognised by Article 1 effectively engrafted a ‘new equity onto the property relationship of citizens?’ Human rights now recognise certain division between the personal entitlements as the quality of human property rights. In other words, the reference in ECHR Art 8(1) says that everyone ‘has the right for respect for private and family life home’, although ECHR Art (2) state that no public authority may interfere with the exercise of this right in the circumstance such as: ‘is necessary in a democratic society in the interest of… the economic well – being of the country, for the prevention of disorder or crime… or for the protection of the rights and freedoms of others.’ ECHR 8 considered a test of ‘proportionality’ on legal meaning to withdraw protection for individuals on his private and family life and his home. But do the provision of ECHR art 8, require respect for one’s home? In Manchester CC v Pinnock shows the balance between compatible principles with ECHR and English land law interests where brought the necessity of clarification and fundamental reassessment in this area of law. Pinnock was 30 years holding a secure tenancy of a local housing owned by MCC, he was living with his partner and 5 children. MCC request a possession order on the ground of antisocial behaviour committed by Pinnock’s soon near the premises. Pinnock argued that it was disproportionate to evict him as a pensioner form his house of 30 years of residence which the misbehaviour conduct case was not from his own but that of his sons. The Supreme court held that ‘in view of the extraordinary possession pattern of crime, nuisance and harassment left uncontrolled by his son, repossession of Pinnock home was not a disproportionate response.’ Based on proportionality measure, the possession raised on basis of the individual circumstances has wide implication which the court have obligation to consider proportionality. In effect, the Supreme Court has openly recognized that the approach creates ‘a potential new obstacle to the making of an order for possession and wide implications’ courts need to consider if proportionality have met. Gray & Gray stated that the case outcome had no real relevance for cases under certain circumstances regimes of housing law, as the state will raise a discretionary rather than mandatory for ground of repossession against home owner. In addition, the measure in question while derogating individual’s rights under ECHR Art 8 ‘ does it mean that individuals have some form of proprietary protection, subject to issues of proportionality alongside overrides the proprietary of others? Gray & Gray observed for instance if ‘homeowners could assert his rights under ECHR art 8 as defence against bank when tries to evict individuals because of default on mortgages payments or against a landlord when seeks to forfeit his leases on ground of breach of convenat.’ In Patel Lord Wilson LJ stated ‘reservoir of entitlement upon which the occupier of a home can drawn in order to resist an order for possession when domestic law leaves him defenceless’ Although, such questions has become the ‘pivotal’ place in recent juristic debate in England. However, it is inevitable that Pinnock jurisprudence would extend others forms of residential tenure where for some reason of social policy, parliament decided to remain non- secure mandatory claims of repossession by the state owner. Although, any vulnerability from an occupier such as mental health illness, physical or learning difficulty, or poor health of frailty may become highly prominent, in strictly terms of Pinnock applies only to ‘demoted tenancies’ under the Housing Act 1996.Thus, possible protection given to the mortgagor under the Human Rights Act 1998: Article 8 and Article 1 Protocol 1 is limited success of such claims.

Chapter Iv- Mortgages, Future Directions

Part I- How fair should the law protect mortgagors, who may have taken the loans that they cannot repay

The previous chapters have demonstrated the importance of the law of mortgages between the mortgagor and mortgagee in encouraging lenders to keep lending while protecting vulnerable homeowners whose homes are at stake. Although, the call for changes to the mortgages law continues for a long time. In 1986 the Law commission published a working paper No. 99; it was the first time that the English law of mortgages was subjected to a systematic statutory reform. The law commission examined the law and proposed certain simplification and standardization of the law relating to mortgages of interest in land. And later again in 1991, the law commission created the second working paper considering new methods ‘of consensually mortgaging or charging interests in land which stating that it should be abolished by legislation and replace by a new form of mortgage to be used for mortgaging any interest in land either legal or equitable’ Thus, the socio economic balance to inequality has deep roots in historical mortgages patterns of acquisition and distribution. We will now demonstrate some suggestion of the law of mortgages and fine line that overly simplistic it is not a bad bank versus innocent borrower. We need to keep in mind that bank lend to make profits which are also vital to the economy. As the same, mortgagors take advantage of the funds available to finance a business choice and lifestyles. Therefore, the main questions are: How fair should the law protect mortgagors, who may have taken the loans that they cannot repay? And How far mortgagee should be protected? And how the law has met the challenge of balancing these interests? Let’s consider some directions for law of mortgages now. The new of thinking about mortgages are contracts, bank, ownership, regulations, residential lending and eviction. These factors are all connected in the ‘credit crunch’, where competition produces plentiful risks for borrowers. In the UK comparing with other countries as France and Denmark the systems here are traditionally more severe towards borrowers and more supportive for lenders. This claim assumes that there is an overlay of social provision. As based of personal welfare and social inclusion, the most expansion of mortgages credit in the field is specially of housing levels where borrower’s intention is to acquire residential property. It is suggested that mortgage contract laws frameworks need to improve this to new social principle in function to prevent effect of over- indebtedness, welfare losses in terms of default and eviction.

The privatization of housing markets does not benefit housing welfare under legal analysis, housing welfare for our purpose is understood of a possibility access to a residential home in which the mortgagor can live. Thus, welfare goal will be not achievable if homeowners who have acquired their home, facing the prospect of losing their own home, for the reasons of become overindebted and evicted of a mortgage default. The consumer law mainly need to pursue the concept of vulnerability to the welfare losses to help identify need of mortgagors with regard to their mortgage agreement to prevent default. However, the hypothesis is that the legal framework governing mortgage contract needs more flexible set of rules which can help to prevent welfare loses in terms of default and subsequence enforcement, eviction and possibility homeless.

Part II- France loans compared to the UK.

In certain European countries like France

Part III- Danish loans compared to the UK

In certain European countries like Denmark shows a such good model of mortgage assisted loans encourage lending because Denmark mortgages model is regarded as being one of the best of its kind in the world. A Danish bank has launched the world's first negative interest rate mortgage – handing out loans to homeowners where the charge is minus 0.5% a year. Negative interest rates effectively mean that a bank pays a borrower to take money off their hands, so they pay back less than they have been loaned while the Bank of England’s base rate is 0.75%, and the European Central Bank’s main rate is zero, in Denmark (which is not in the eurozone) the equivalent rate is -0.4%. It consists of a unique balance principle, match funding and a market-based prepayment system. These features ensure that the Danish mortgage credit market is characterized by transparency, competitiveness and stability..

The benefits are:

Low, competitive prices on loans against mortgages on real property

Transparency in prices and repayment terms

Available to all owners of real property

Part V- Conclusion

This difficulty in knowing mortgages is compounded by the fact that there is no comprehensive statutory statement of the relevant law. While the rules developed over the years by the courts may themselves be clear and well known to specialists in the field, the fact that much of what has been enacted must be supplemented from other sources, in order to be fully understood, makes the law on this topic much less accessible than we consider is desirable and appropriate. The second ill-effect of the artificiality and complexity of the law is that it complicates conveyancing, because it makes it more difficult to develop standardised mortgage documents. The artificiality and complexity we refer to in the preceding paragraphs are largely attributable to problems in the structure of English mortgage law. There are two broad structural problems to which most of the unnecessary complications in the law can be ascribed. First, English law recognises too many types of consensual mortgage or charge, and too many methods of creating some of the types. Secondly, the methods used to create legal and equitable mortgages in the present law give rise to inappropriate relationships between the parties, which have had to be modified by equity, by piecemeal statutory reform, and by contract. However, a time of major regulatory change and ongoing political uncertainty for the sector.

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