Law of Mortgages

The Essential Nature of a Mortgage:

A mortgage is a contract, between a borrower (mortgagor) and the lender (mortgagee). While at
times this is express, it may be implied as well, as where the court decides that the conduct of par-
ties in relation to an asset amounts to a mortgage (or ‘charge’).
There, however, may be instances where the contractual terms may be in conflict with the
proprietary aspect of mortgages, in which case, it is up to the courts to decide which will prevail.

An Interest in Land:
The mortgagee obtains a proprietary interest in the land of the borrower with all that it entails, the
borrower retains an ‘equity of redemption’ - itself a proprietary right - which encapsulates his resid-
ual right in the property (which means he will get the property back once the mortgage payments
are made off).
Both the mortgagor and mortgagee can transfer their respective rights to third-parties.

Classical Definition:
Simply, a mortgage is a security for a loan. It entails a transfer (conveyance) of legal or equitable
interest in borrower’s land to the mortgagee, with a provision that the mortgagee’s interest shall end
upon repayment of loan plus interest and costs. There is a principle that ‘one a mortgage, always a
mortgage’ means that you can’t destroy the borrower’s right to get back his property in full once re-
payment is done - any contractual term that contradicts this principle will be disregarded.

Purchasing Property:
An issue with this is the fact that when a borrower wants to buy a property, the property itself is
what he intends to put up as security for the loan, but to buy the property he needs the money first
(which the mortgage provides)! This happens in a two step process: the purchaser buys the prop-
erty ; subsequently, a mortgage is signed. However, between these two steps is a small sliver of
time (scintilla temporis) where no mortgage exists, yet the title of property is transferred to new
owner. In this time, certain new rights may accrue, for example: if A’s wife contributed to purchase
price, her right would spring up before mortgage.

This logical problem is solved by Abbey National Building Society v Cann: which states that
there is no scintilla temporis between a purchaser’s acquisition of title to property and the subse-
quent creation of a mortgage over the property if that mortgage has enabled the purchase to take
place. This principle was upheld, for LRA 2002, in Cook v The Mortgage Business Plc.

TYPES OF MORTGAGE:
1) ‘Repayment mortgage’: Used for purchase of residential property and finance commercial ac-
tivities. The mortgagor borrows a capital sum and agrees to pay back that sum + interest over a
period of time. The repayment is done in instalments, with the early instalment representing
pure interest, and later instalments comprising a greater and greater capital element.
2) ‘Endowment mortgage’: Used for purchase of residential property, less commercial. The mort-
gagor borrows a capital sum for fixed period (usually 25-years). The mortgagor pays the inter-
est in regular monthly instalments. None of this goes towards paying the capital sum. The mort-
gagor also enters into an ‘endowment policy’ (i.e. savings plan) where he pays a regular sum to-
wards the purchase of an ‘endowment’ which will mature at the same time as the mortgage pe-
riod ends. This usually generates enough to pay off the capital sum. If it does not, mortgagor
must pay off any balance by other means, or re-mortgage and continue to pay instalments.
3) ‘Current account mortgage’: The lender agrees on overdraft facility on bank current account to
value of the mortgage. Lender provides these monies for purchase of property in normal way
and interest will be charged at prevailing rate. The borrower will pay funds into the mortgage
 current account (e.g. monthly salary) and some of these funds will go towards paying interest
and/or capital sum. As more and more of the mortgage debt is decreased, the interest decreases
as well.
4) ‘Secured overdraft’: Similar to the above one, but for commercial purposes

Legal Mortgages of Freehold Estate (LPA 1925):

Under s.85 (1) of LPA 1925, there are two methods of creating a legal mortgage of an unregistered
freehold estate: long lease method; and the charge.

Long Lease Method:

The mortgagor grants the mortgagee a long lease over the land with a provision that the termination
of lease will be done on repayment of all sums due under the loan. Even if the mortgagor fails to
pay by the ‘legal date of redemption’, under equity, as per the principle of ‘once a mortgage, always
a mortgage’, he has the right to terminate this long lease if he has paid the sums of the loan (even if
the legal date of redemption has passed).
The consequences of the long lease are:
1) Mortgagor retains the legal fee simple throughout the terms of the mortgage. The borrower al-
ways retains an estate in land
2) Mortgagee acquires a proprietary interest in land, that being a leasehold estate.
3) The mortgagor may create further legal mortgages of his land in order to raise further capital.
The second person will be granted a mortgage longer than the first (e.g. 3001 years)
It must be remembered that this type of method is no longer available for mortgages of registered ti-
tles granted after LRA 2002.

The Charge:
The charge by deed involves the execution of a ‘charge by deed’ (s.85 (1) and 87 of LPA 1925).
This is the only method now available for registered titles, after the entry into force of LRA 2002.

Legal Mortgages of Registered Titles (LRA 2002):

By virtue of s.23 (1) of LRA 2002, the legal charge is the only permissible method of creating a le-
gal mortgage of a registered freehold or leasehold estate. The s.23 (1) states two ways in which the
property may be charged:
1) The usual ‘charge by deed expressed to be by way of legal mortgage’
2) Charging the land with payment of money

It does not matter how it is charged, because s.52 of LRA 2002 states that the charge (second ver-
sion) on the land will take effect as a ‘charge by deed by way of legal mortgage’.

Under s.87 of LPA 1925, the charge must be made by deed, and it must be expressed to be by way
of a legal mortgage: it must declare itself to be a ‘legal mortgage made by charge’. The section also
states that the mortgagee is granted the same rights and protection under the charge as they were un-
der the long-lease; technically saying that they have a proprietary interest in the property.

Registration of Legal Mortgages - LRA 2002:

It must be registered as a ‘registrable charge’ against that title (s.25 and 27 of LRA 2002). This reg -
istration shows mortgagee as proprietor of charge and ensures that mortgagee’s rights take prece-
dence over any prior rights (excluding any registered right or overriding interests - s.29).

If it is not registered, the mortgagee only has an equitable right, and his interest becomes vulnerable
especially if the registered proprietor (the borrower) sells the property by registered disposition
(s.29 - valuable consideration).
Equitable Mortgages:
The equitable mortgage is either made because the mortgagor has an equitable estate in land, or be-
cause they failed to comply with the formality requirements (e.g. getting the legal mortgage regis-
tered on the Land Register).

• Where the informality arises because of a failure to register the mortgage as required, the mort-
gage is equitable by force of statute (s.27 of LRA 2002).
• The equitable mortgage is carried into effect by a conveyance of the whole of the mortgagor’s eq-
uitable interest to the mortgagee. This is of course accompanied by a provision of retransfer of the
equitable interest when the loan is repaid (William Brandt v Dunlop Rubber). Since this is a
‘disposition’, there is no need to use a deed, but the ‘disposition of an equitable interest’ must
comply with s.53 (1) (c) of LPA 1925: must be in writing.
• Where no deed is used at all, it must comply with the requirement of s.2 of Law of Property (Mis-
cellenous Provisions) Act 1989. Only if it is specifically enforceable will it be treated as a valid
contract (Walsh v Lonsdale).

Before the Law of Property (Misc Provisions) Act 1989, it was possible to treat as the mortgagor’s
deposit of title deeds as ‘part-performance’. However, the COA in United Bank of Kuwait v
Sahib, confirmed that the deposit of title deeds is an attempt to create a mortgage by unwritten
contract and is therefore void. No such mortgage an be created.

Mortgage by estoppel:
In Kinane v Alimony Mackie-Conteh, the COA accepted the claimant had a mortgage by
estoppel because he had lent money on faith of an assurance that a valid mortgage would be forth-
coming. When the mortgage did not materialise - the written agreement attempted by the parties did
not comply with s.2 of the 1989 Act - estoppel stepped in.

In Halifax Plc v Popeck, Halifax’s charge (mortgage) appears to have arisen by estoppel because
it lent money on faith of an assurance by the borrowers that it would be granted a legal mortgage
over the whole of the borrower’s land. When it transpired that Halifax only had a registered legal
charge over a narrow strip of land - because of fraud perpetrated by the borrowers - it was awarded
an equitable mortgage over the entire property because of an estoppel and in the result this equitable
mortgage prevailed over the other claimants to the proceeds of sale of land.

Equitable Charge:
This requires no special form of words, only an intention to charge property with a debt. While
Murray v Guinness, suggests that because such a charge does not technically involve a disposi-
tion of an interest in land, it need not comply with s.53 (1) (c) of LPA 1925. It was pondered in Ki-
nane, that perhaps this charge might nevertheless fall within s.2 of the LPA 1989 and thus require
a written instrument under the statute.

A problem with equitable mortgages and equitable charges:

The equitable mortgagee could lose his priority over the land because of a subsequent sale of the
mortgaged estate; either by deed in unregistered disposition, or for value of a legal estate within
s.29 of LRA 2002. Therefore, to protect this interest:

1) If the equitable mortgage exists over unregistered land, it is registrable as a Class C (iii) land
charge under the Land Charges Act 1972 (LCA 1972). If not registered, it is void against any
purchaser for valuable consideration of a legal or equitable interest in the land.
2) The equitable mortgagee should seek to protect his mortgage by means of an entry of a Notice
against the mortgaged registered title. Failure to enter a Notice will cause the equitable mort-
gagee to lose priority in favour of a properly registered purchaser of land, unless the equitable
 mortgagee happens to claim overriding interest under Sch 3, para 2 of the LRA 2002 Act, per-
haps through being in actual occupation (this is rare).
3) In registered land, even an unregistered equitable mortgage will retain priority over a transferee
who does not give valuable consideration, such as the recipient of a gift, or a person who inher-
its under a will or intestacy - as per s.28 of the LRA 2002.

Registration of Mortgages:
If the land is unregistered, the following types of mortgages are registrable as land charges:
1. a puisne mortgage (i.e. a legal mortgage not protected by deposit of title deeds) as a Class C (i)
charge
2. contract for a legal mortgage (estate contract) as C (iv) charge; and
3. general equitable charge as C (iii) land charge (LCA 1972 s.2 (4))

The mortgagee of an equitable interest should give notice to trustees in order to secure priority un-
der the rule in Dearle v Hall.

All first legal mortgages attract compulsory first registration. For all other legal charges that are
placed on the property after LRA 2002, need to be registered against the affected estate for them to
be legal (s.13 (2) LRA 2002).
THE RIGHTS OF THE MORTGAGOR: EQUITY OF REDEMPTION
Whatever the contract says, a borrower under a legal mortgage always retains paramount legal title
to the estate they are mortgaging.

Casborne v Scarfe:
‘ An equity of redemption has always been considered as an estate in land, for it may be devised,
granted, or entailed with remainders, and such cannot be considered a mere right only….’ (thereby
recognising the equity of redemption as a proprietary right)

The contractual right to redeem:

• The mortgagor has a contractual right to redeem the mortgage on the date specified in the mort-
gage contract. This is the legal date of redemption.
• The mortgagor has the right to redeem the mortgage at any time after the legal date for redemp-
tion has passed simply by paying the principle debt, interest and costs. This right to redeem be-
yond the date fixed by the contract is known as the ‘equitable right to redeem’.

The equitable right to redeem:

If a property is not redeemed on legal date, it entitles the mortgagee to keep the property even if its
value was far greater than the loan secured on it. Since this can be abused, the principle ‘once a
mortgage, always a mortgage’ would allow redemption of the mortgage after the legal date -
Thornborough v Baker.

The equity of redemption:

This comprises, the residual rights of ownership that the mortgagor has, both in virtue of their para-
mount legal estate in land and in the protection that equity affords them. The equity of redemption
is itself valuable, and a proprietary right, which may be sold or transferred in the normal way. It
represents the mortgagor’s right to property (or its monetary equivalent) when the mortgage is dis-
charged (redeemed) or the property sold, and its existence is the reason why second and third lender
lenders are willingly to grant further loans.
The rule against irredeemability:
Vermon v Benthel:
Any term that is considered as a ‘clog or fetter’ will be removed. This is so because necessitous
men are not, truly speaking, free men - will submit to anything.

Therefore, any provision whereby the mortgagor (borrower) is said to forfeit his property on the ex-
piry on the mortgagor’s right to redeem is void, and any undue postponement or limitation on the
mortgagor’s right to redeem thereafter will not be enforceable (Jones v Morgan).

However, this may be allowed (keeping in view the contractual nature of mortgages) if the parties
are commercial parties and are dealing at arms length, and the provision is not illusory (and re-
demption can be ACTUALLY done, even if it requires a further act or so, e.g. waiting 20 years to
redeem or paying 15% addition fees as a ‘redemption fees’).

Postponement of DOR:
It is allowed to postpone the DOR for it allows the mortgagee to earn interest on the loan. However,
any attempts to post-pone it which make the ‘equity of redemption’ an illusion will not be upheld.
This is a question of degree:

Knightsbridge Estates Trust v Byrne: (freehold)

The mortgagor covenanted not to redeem a mortgage of freehold land for 40-years.
Held: It was held valid. This is because the parties were commercial, of equal bargaining power , none of the
terms were oppressive and unconscionable and furthermore, the mortgage estate was freehold (courts are less
strict for freehold)
It was held that the purpose of equity is two-fold: (1) to ensure essential requirements of mortgage are ob -
served, and other (2) oppressive and unconscionable terms are not enforced.

Fairclough v Swan Brewery Co Ltd: (leasehold)

F, held a 17-year lease on a hotel and borrowed, using the lease as security. The contractual date of redemp -
tion was set to be just 6 weeks before the lease was due to expire.
Held: This is not valid, because it only left the estate free of debt for a few weeks, and therefore made it
practically irredeemable. Therefore, it is a mere illusion. (courts are more strict in leasehold)

Option to purchase:
A provision in a mortgage contract that provides that the property shall become the mortgagee’s or which
gives the mortgagee an option to purchase is void. Such a term is repugnant to the very nature of a mortgage
and is offensive to both the legal and equitable right to redeem and is void at both law and equity.

Vernon v Bethell:
There is an established rule that a mortgagee can never provide at the time of making the loan any event or
condition on which the equity of redemption shall be discharged, and conveyance absolute. The reason…’ne -
cessitous men are not, truly speaking, free men, but to answer a present exigency will submit to any terms
the crafty may impose upon them’.

Samuel v Jarrah Timber:

The mortgagee was given ‘the option to purchase the whole or part of [the stocks that mere mortgaged] at
40% at anytime within twelve months’. Within that period, mortgagee tried to claim this option in respect of
whole stock. Company claimed to redeem and have that option struck down as being illegal and void.
Held: The option was void, and Company was entitled to redeem.
The judge, accepted reluctantly, although stating that ‘A perfectly fair bargain was made between two sensi -
ble parties who knew what they were doing’ yet it cannot be done because there was a mortgage agreement
made between them.
The other judge stated that the rule in Vernon v Benthell should be modified so as to prevent it from being
used as a means of evading a fair bargain come to between persons dealing at arms’ length and negotiating
on equal terms.

Reeve v Lisle:
Property mortgaged to secure loan of money. Later date, agreed between parties that if within 5-years the
mortgagees should elect to enter into partnership with mortgagors, the mortgagors should be relieved of lia-
bility to repay loan.
Held: The agreements were construed as being two transactions, separate and independent of each other, and
therefore were binding on mortgagor.

Warnborough Ltd v Garmite Ltd:

The COA made it clear that the mere fact that an option to purchase the property is granted by the mortgagor
to the mortgagee at the same time as the mortgage is granted, DOES NOT mean that it is a ‘clog’; it is neces-
sary for the court to look at the true nature of the bargain made by the parties. Therefore, the courts are not to
look at the labels attached to the agreement, rather the substance.

Jones v Morgan:
1994: Two brothers mortgaged Farm to Mr Jones in order to develop it as nursing home. The funds were in-
sufficient.
1997: new agreement made between parties upon which part of land was to be sold to a neighbouring farmer.
Proceeds of sale to be used to discharge mortgage loan, and brothers were also to transfer ‘a one half share or
interest in legal estate’. Mr Jones sought specific performance for this later on.
Held: (1) the bargain was neither unconscionable not procured by duress; (2) the 1997 agreement was clog
on the equity of redemption.
Lord Phillips: Accepting that the clog on equity served no useful purpose and that it should be excised, held
that the 1997 agreement did not alter nature of contract, but was merely ancillary to refinancing agreement. It
was not part of a collateral agreement.
Pill LJ (dissent): Argued that 1997 agreement was neither a rearrangement of 1994 mortgage, nor in sub-
stance a fresh mortgage. It was a mere commercial agreement that should not be prohibited by the ‘clog on
equity of redemption’ doctrine.
Unfettered redemption: Collateral advantages
A court has struck down ‘collateral advantages’ where the mortgage contract stipulates that the
mortgagor should fulfil some other obligation as a condition for the redemption or continuation of
the mortgage.

Kregliner v New Patagonia Meat:

The appellants, a firm of woodbrokers, agreed to lend 10,000 pounds to the respondents, a firm of
meat packers. If all terms are observed, they (respondents) would not be called in for 5 years. Re-
spondents could pay off loan any time. One clause in agreement stated that respondents, would not
for 5 years ‘sell any sheepskins to any person….other than the lenders so long as the lenders are
willing to purchase the same at t price equal to the best price…offered…by any other person’.
Respondents paid in 2 years, but disputed right of appellants to exercise the option to purchase the
sheepskins.
Held: The bargain was to stand, and it was painstakingly argued by Lord Parker that “there is now
no rule in equity which precludes a mortgagee, whether the mortgage be made upon the occasion of
a loan or otherwise, from stipulating for any collateral advantage, provided that such collateral ad-
vantage is not either:
(1) unfair and unconscionable;
(2) in the nature of a penalty clogging the equity of redemption
(3) inconsistent and repugnant to the contractual and equitable right to redeem

Biggs v Hoddinott:
Hoddinott, owner of public house, mortgaged it to Briggs, a brewer. Agreement contained provision
to the effect that during continuance of mortgage Hoddinott would only deal with Biggs, in pur-
chase of certain liquor. About two years into the agreement, defendant ceased to purchase liquor
from Biggs and claimed to entitle to redeem.
Held: The covenant tying the public house during the continuance of the mortgage was valid. De-
fendant could therefore not redeem.

Saintley v Wilde:
A loan provision was upheld even though it provided for payment of both interest and one-third of
profits from rent on a ten-year leasehold.

Noakes v Rice:
There are three doctrines of Court of Equity:
1. Once a mortgage always a mortgage
2. Mortgagee shall not reserve to himself any collateral advantage outside the mortgage contract
3. Provision or stipulation which will have effect of clogging or fettering the equity of redemption
is void
Any provision that requires the mortgagor to pay even after the principal is paid off, and require
him to pay interest after principal is paid, will be void. Therefore, permanent collateral advantages
will most likely be considered as ‘clogs and fetters’.

Bradley v Carritt:
This case over-ruled Santley v Wilde.
Unconscionable terms and unreasonable interest rates:
The Financial Conduct Authority (FCA) has been responsible for regulating all mortgages.

Multiservice Bookbinding v Marden:

Plaintiff charged business premises to attain loan to buy new premises. Defendant (lender) was only
willing to lend money if he could be safeguarded against decline in purchasing power of sterling
(fluctuating currency). Terms were:
1. Interest payable at 2% above bank rate on full capital sum for duration of mortgage;
2. Arrears of interest be capitalised in 21 days
3. Loan be neither called in nor redeemed for 10-years;
4. Capital and interest be index-linked to Swiss Franc
Held: All terms were valid. Index-linked money obligation is not contrary to public policy. Is not
enough to show that terms are ‘unreasonable’ - they need to be either oppressive or unconscionable.
The terms cannot be either oppressive or unconscionable until one party imposes objectionable
terms in a ‘morally reprehensible manner, that is to say, in a way which affects his conscience’. e.g.
where advantage is taken of young, inexperienced person.

Cityland & Property v Dabrah:

Plaintiff company was freehold owner of house of which the defendant had been tenant for 11
years. Lease expired and plaintiff sold freehold to him. He paid 600 pounds, rest by mortgage. A
convenient to pay by instalments. A premium of 57% over the sum advanced had to be paid.
Held: Not allowed. The size of premium was too much and lacked any justification or reason, keep-
ing in mind relative strength of lender and borrower. The premium was therefore, oppressive and
unconscionable.

Davies v Directions:
The lender had not acted improperly by imposing a 21.6% rate of interest (highest market rate was
17%). In reaching this conclusion, court took into account poor credit history of borrower and sub-
sequent risks being taken by lender.

Paragon Finance v Nash:

The court held that a lender’s discretion to vary interest rates was subject to an implied term not to
exercise that discretion for an improper purpose, arbitrarily or capriciously. However, maintaining
interest rates at 2-4% above those on the high street was not a breach of this implied term or
‘grossly exorbitant’ under the CCA 1974 (now replaced by Consumer Credit Act 2006).
The lender was having financial difficulties, and in taking its own commercial needs into account,
had not acted in an improper way.

The word ‘extortionate’ were replaced by ‘unfair relationship’ under CCA 2006. This allows courts
to examine not only terms of agreement, but also whether the credit’s behaviour towards the bor-
rower has been unfair in any way. The legislation does not define ‘unfair relationship’ - this is for
the courts to decide. Any unconscionable terms, lack of good faith and inequality of bargaining
power will be important factors.
Paragon Finance v Pender:
The COA held that although C’s power to vary interest rates for mortgage was subject to an implied
term that it would be not be exercised improperly or capriciously, this did not prevent the lender
from raising interest rates above those of competitors for genuine commercial reasons.

Re Petrol Filling Station, Vauxhall Bridge Road London:

Plaintiffs were owner of petrol station, entered into 20-year contract with defendant in 1956. Plain-
tiff agreed to sell only the defendants’ products and were entitled to rebate on price in addition to
usual commission.
Seven months later: mortgaged their garage to defendants. repayment of loan over 19-years; right to
pre-emption over premises to defendant during continuance of mortgage; contract done before
mortgage was tyed during continuance of mortgage.
Q: Are plaintiffs entitled to redeem, and to be free of restrictions contained in contract and mort-
gage?
Held: Plaintiffs were bound by contract and mortgage.
The contract can be ‘clog on equity of redemption’ if it was sufficiently connected with it (the mort-
gage). However, in this case, ‘the tying would cease to operate and no question of clog can arise
with regard to them’.
RIGHTS OF MORTGAGEE:
While the mortgagee always has a contractual right (once the legal DOR has passed) to sue for damages, we
must consider any other remedy that the mortgagee may possess. The two most important remedies are:

General Rule: S.91 LPA 1925

National Westminster v Hunter: Mortgagors are allowed to sale property as well (so long as
the conditions laid down in Standard Chartered Bank v Walker are met).

Lord Waring v London and Manchester Assurance: mortgagee can sell. Under a duty to
act in good faith and to take reasonable care to obtain true market value

POWER OF SALE:

Where a mortgage is made by deed, the mortgagee has a statutory power of sale which is exercisable out of
court. The power arises when the mortgage money becomes due (S.101) or in case of installments, it is in
arrears for one month (Twentieth Century Banking v Wilkinson), it is not exercisable until at least
one of the three conditions laid down in S.103 LPA 1925 are met:

2. Default in complying with notice to repay any of the mortgage money for three months;
3. Interest remaining unpaid for 2 months after it becomes due
4. Breach of other condition of mortgage (such as convenient to repair, and thereby premises falls into dis -
repair: Ladsky v TSB Bank)

Standard Chartered Bank v Walker:

It was held that the duty to take ‘reasonable care to obtain a proper price’ was owed by the mortgagee. Fur -
thermore, the mortgagee may sell at any given moment - although of course if he choses to sell at a certain
bad moment (e.g. when prices of property is down) then that will be taken into consideration.

Selling to Employees:
Tse Kwong Lam v Wong:
1963: Appellant mortgagor constructed large building, containing ships, offices, flats, etc. Financed it by
loan from respondent to whom he mortgaged the building. Appellant fell in arrears in 1966. Respondent ar-
ranged for building to be publicly sold. Few days before auction, respondent and wife, who were directors of
a company, of which they and their children were sold shareholders, decided to bid for the building. They
won bid.
Appellant wanted sale to be set aside on grounds it was carried out improperly and undervalued (by 0.2 mil -
lion HK$).
Held:
5. Respondent failed to show that he had taken reasonable steps to obtain best price obtainable;
6. By reason of his delay but, appellant was not entitled to have sale set aside, just get damages
There is no rule that a mortgagee may not sell to a company in which he is interested. They must show that
they upheld the transaction in good faith and mortgagee took reasonable steps to obtain the best price reason -
able obtainable at that time.
However, the mortgagee is under no obligation to postpone sale in hopes of getting a better price.
Palk v Mortgage Service Funding:
Mr and Mrs Palk borrowed money from Mortgage Services Funding plc on joint mortgage. Mr Palk’s busi -
ness failed, went bankrupt. Mrs Palk remained liable. The Palks negotiated a sale of house in order to stop
interest continuing to accrue on debt. The mortgagees wished to take possession of house and let it on short-
term lease and then sell when market improved.
Held: The court has discretion under S.91 of LPA 1925 to order against even against wishes of mortgagor
and in a depressed market price.
The sale was allowed, as it was just and equitable otherwise unfairness and injustice will follow. In such a
situation, the mortgagee can also buy the property - since it is the court directing sale, not a sale by a mort -
gage in exercise of its own power of sale.

Cheltenham & Gloucester v Krauz

Mortgagors of certain estate, had failed into arrears with their mortgage. Mortgagee obtained order for pos-
session. This was done 4-times; each time the parties struck an agreement. Mortgagors arranged sale of prop-
erty. Mortgagee resisted application, because their debt had increased more than the value of property.
Held:
Requires consideration of law relating to mortgage of dwelling house:
4) The circumstances in which the mortgagor is entitled to order for sale of mortgaged property;
1) Cited Palk’s case. It may be done in cases where the value of property is sufficient enough to discharge
the entirety of mortgage debt. Although, S.91 allows this to be done even if value of property is not suffi-
cient to meet debt.
2) Citing the case of Barrett v Halifax Building Society the rule is now that ‘where there is negative equity
it will be open to the mortgagor to resist an order for possession on grounds that it wishes to obtain a bet -
ter price by remaining in possession and selling the property himself’
5) Circumstances in which jurisdiction to suspend entry into possession of dwelling house by the mortgagee
1) If the mortgage is being paid by instalments and u fall into arrear - the whole instalment becomes due at
once. In this situation, the court is obliged not to refuse the mortgagee’s application for possession.
2) However, the effects of this common law rule are now mitigated by S.36 of AJA

Meath v Lloyds Bank:

No duty on mortgagee to wait. Can sell at any time, and must get the best obtainable price in that period.

Horsham Properties v Clarke:

The mortgagee can sell the property without actually being in possession of the property.

Cuckmere Brick Co Ltd v Mutual Finance Ltd:

A sale by open auction even where prices are low, satisfies the duty to get best prices reasonably obtainable.

FORECLOSURE: (Need not know in detail)

Foreclosure is a judicial procedure and a foreclosure order operates to vest the mortgagor’s fee simple or leasehold reversion in the
mortgagee subject to prior mortgages (S.88 and S.89 of LPA 1925). The court, may, at the request of anyone (mortgagor or mort -
gagee) order sale under S.91.
Law Commission recommended its abolition.
Right To Possession:

Four-Maids Ltd Dudley Marshall:

The right to possession begins for the mortgagee ‘before the ink is dry on the mortgage’

Mobil Oil v Rawlinson:

Rawlinson was owner of equity of redemption in respect of certain estate. The mortgage on petrol station se-
cured a loan from, and also all sums due to, the defendant under a supply agreement. Rawlinson fell into ar -
rears, plaintiff sought possession of filling station. Rawlinson counterclaimed.
Held: While the court has jurisdiction to stay possession, it will only do so where there is an opportunity that
the mortgagor might pay off the arrears.

Cheltenham v Norgan:
The COA allowed the whole remaining term of mortgage, 13-years, for the mortgagor to clear the arrears,
stating that although cases had treated 2-years as a ‘normal’ period to clear arrears, there is no particular
length of time which is a ‘reasonable period of time’ within which arrears must be paid under the wordings
of S.36 LPA 1925.

The common law position of the right to take possession was examined in great detail in the following case:

Ropaigealach v Barclays Bank plc:

In holding that the common law right of mortgagee to take possession of premises without a court order had
not been abrogated by S.36 of Administration of Justice Act 1970, it was said that the right of the mortgagee
to take possession of property need not only be exercisable with the assistance of the court.