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A mortgage is a bundle of rights over someone’s land, granted as security for a loan. By granting these rights, the borrower encourages the lender to advance more than he otherwise would, or at a more favourable rate of interest, because the lender knows that the risk of default on the loan is much lower.
However, the borrower needs to know that the rights he is granting to the lender are real, not notional, rights over his land, and the lender may well be able to enforce them. In everyday speech people tend to talk of a mortgage as if it were a loan (`I bought my house with a mortgage’), but a mortgage is merely the security for a loan. When banks use the term `mortgage’, `secured loan’, or `loan secured on property’, they are talking arrangements which are legally more-or-less equivalent. Although it is common to think of a lender `giving a mortgage’, legally it is the borrower who grants the mortgagor, and is thus called the Mortgagor. The lender is the Mortgagee.
The Mortgagee of a mortgaged property is entitled to take possession of it. This entitlement does not follow from a particular statutory right, but is a logical consequence of the way that mortgages work in English law. A mortgage is created by granting a lease to the mortgagee, or is deemed to be equivalent to so doing (s.87 Lpa1925). By definition, a lease creates a right of possession in favour of its owner.
Although possession is a right, the mortgagee does not have a right to effect possession by force. Unless the property is standing empty, the mortgagee will need to apply to the court for a possession order. Such an order will only rarely be refused unless the property is a dwelling house. In this case, s.36 the Administration of Justice Act (1970) gives the court a power to postpone possession where there is a realistic possibility that the mortgagor will be able to meet the sums due under the loan.
According to s.8 of the Administration of Justice Act (1973), the `sums due’ to not include any sums that arise by virtue of the mortgagor’s failure to meet repayments of an installment mortgage. For example, it is usual for a mortgage agreement to contain a term to the effect that the whole balance becomes due if even one repayment is missed. The effect of s.8 is that the courts can grant relief to the mortgagor without requiring him to raise the entire amount of the loan.
Strictly speaking, a mortgagee does not have to seek possession — with a court order or without — to be able to exercise a power of sale. However, it is unlikely that a mortgagee will be able to sell the property while the mortgagor is still occupying it. Even if he does, he may be liable to the mortgagor for failing to realise a good price (CuckmereBrick V Mutual Finance 1971)
If a Mortgagor is in default of repayments, the Mortgagee may seek to sell the mortgaged property to realize his security. This power to sell is implied into every mortgage made by deed by s.101 of the Lpa1925, which goes on to say that the power of sale arises when the loan repayment becomes due.
However, the power only becomes exercisable (s.103) by the mortgagee if
(i) he has served notice on the defaulting mortgagor and not received payment three months after service; or
(ii) mortgage interest repayments are in arrears by more than two months; or
(iii) the mortgagor is in breach of some other covenant in the mortgage agreement.
The distinction between when a power of sale arises and when it becomes exercisable is important. This is because it is the responsibility of the purchaser from the mortgagor to ensure that the power of sale has arisen. If it has not, the sale is not valid. However, the purchaser does not have to satisfy himself that the power is exercisable. If the mortgagee sells the property before the power has become exercisable, he may be in breach of his obligations to the mortgagor, but it is still a good sale. The effect of sale is to vest the estate in land in the purchaser, free of the mortgage and any other mortgages of lower priority.
In practice, unless the mortgaged property is standing empty, the mortgagee will need to seek an order for possession before sale. He is not obliged by law to do so, but he cannot evict the mortgagor by force, and the property will probably not be saleable unless the mortgagee can give vacant possession.
The power of sale must be exercised in good faith, that is, in order to obtain the best price reasonably achievable. The mortgagee may find himself liable to the mortgagor if he fails to so so.
Consequently, many mortgage lenders prefer to appoint a receiver to handle the sale; the receiver is the agent of the mortgagor, not the mortgagee, so the mortgagee cannot be liable for the negligence of the receiver (unless, perhaps, he is negligent in appointing the receiver).
Particular problems arise for the mortgagee if his charge is over only over a share in the property. This may happen if, for example, the mortgage cannot be enforced against all the equitable co-owners of the property (as, for example, in williams and glynns bank vboland 1981; but note that if the mortgage advance is paid to two or more legal co-owners, the equitable co-owners will be overreached — city of london building society vflegg 1987). s.30 of the Lpa1925 allows a mortgagee to ask the court for an order of sale, and such an order would usually be granted unless to do so would cause exceptional hardship (Lloyds Bank V Byrne & Byrne 1993).
In many legal arguments it can be quite important to determine when the Title to some property or other passess from one person to another. Title to interests in land Strictly speaking, a private citizen cannot have any title to land: all land belongs to the Crown. Instead, we say that there is an `interest in land’, and somebody owns that interest, or owns the title to that interest (same thing). In Unregistered conveyancing, legal title to an interest in land passes on execution of a Deed of Conveyance. In Registered conveyancing, if the interest is registerable, then title passes when the new ownership is entered on the Register.
A deed (technically a Deed of transfer, not a conveyance) is still required to satisfy the Registrar, but the deed itself has no effect on title. Otherwise, if the interest is not registerable, the same rule applies as to unregistered conveyancing.
Typically the buyer and seller contract in advance to transfer the interest and, provided neither party attempts to rescind the Contract, the transfer itself is almost formality. If the remedy of Specific performance would be available to compel one or other party to effect the transfer, then the transfer will be `effective in equity’ from the moment of execution of the contract. Thus courts will recognize that equitable ownership has been transferred from that point; the seller retains the legal title, but on Constructive trust for the seller. For most practical purposes, the buyer owns the interest from contract.
Title to goods The Sale of goods act 1979 states that in a Contract of sale, title passes at the time the contract is made. In many cases this will be at the moment an Offer is accepted (see: Acceptance of offer). Unless the contracting parties stipulate otherwise, and in contrast to most other jurisdictions, in English law there is no automatic passage of title on delivery of the goods. However, title by deliver does apply when the transfer of title is in the form of a gift, rather than a sale.
Title to things in action Things in action (e.g., copyrights, debts) have no tangible presence and therefore present particular problems in the passage of title. There is specific legislation to deal with the passage of many of these articles, e.g., debts (Law of property act 1925), shares in companies (Companies act 1985), patents, insurance policies, etc., and it is difficult to give general rules.
Both the loan (the debt) and the charge (lender rights) are things in action, also called choses in action rather than choses in possession. Both the debt and the lenders rights are choses in action as they are both intangiable. As such the “legal title” to the debt and the lenders rights to be “sold” the sale must comply with s.136 of the LPA 1925, in so much that a express notice of the sale must be given to the borrower.
It is the case that within the UK, notices are not given to borrowers. Therefore, the sale does not comply with s.136 of the LPA 1925 and is classed as an equitable assignment. There are arguments I have seen on consumer forums that the use of s.136 of the LPA 1925 is fraudulent and that s.136 was never designed to be used in securitisation transactions.
These arguments, demonstrate a clear misunderstanding of the law. S.136 was introduced and implemented to define the specific requirements for a legal assignment (transfer of absolute ownership). Therefore, to say that the use is fraudulent is obviously absurd and has absolutely no basis in law.
Another argument, I often come across which is equally absurd and has no basis in law. It is theorised that following the implementation of the LRA 2002, under s.27 the disposition of the charge must be registered and the failure to do so is again speculated to be fraudulent. This clear example of putting the cart before the horse, so to speak.
For there to be a requirement for a disposition to be registered as per s.27, it would stand to reason that there must have first been a disposition. If there has been no disposition, there is no disposition to be registered. As both the debt and the lenders rights are choses in action and can only be legally assigned AFTER an express notice has been given to the borrower disposition of the legal title is prevented by law. So rather than being an example of fraud as promoted by various consumer “help” forums and blogs, it is a clear example of compliance with the law.
It should be clearly noted that all of the documentation relating to the securitisation of mortgages in the UK confirm that the sale is equitable subject to notification to the borrower and that it is only certain individuals (posters on consumer “help” forums” that insist it is otherwise. However, when put to strict proof to substaniate their arguments they fall at the first hurdle.
The various debates and at times childish arguments I have followed on various sites with regard to securitisation, were original ignited by a submission to the Treasury Select Committee by Carmel B Butler. However, in her submission, one would presume for the sake of convenience she made no reference to the court cases that had previously specificially judged the issues she identified. Of course there were the two paragon v pender cases in 2003 and 2005, being a high court case and a court of appeal case. Both resulting in important judgements that for the sake of completness should have been included within her submissions. Nevertheless, the debates with regard to securitisation continue.
I must wonder if these debates would still continue if the success of Ms Butler’s arguments were as well documented on consumer “help” forums as the arguments themselves.
In, Basinghall Finance PLC v Butler [2009] EWCA Civ 1262 (mortgages, assignment, securitisation, privity, Consumer Credit) and previous cases at County Court and High Court, Ms Bulter’s arguments met with little success as evidenced by the requirement of the case to be heard at the COA and furthermore an application to appeal was dismissed.
------------------------------- merged -------------------------------
In summary it is the rule of law that defines as and restricts the sale as an equitable assignment.
However, the borrower needs to know that the rights he is granting to the lender are real, not notional, rights over his land, and the lender may well be able to enforce them. In everyday speech people tend to talk of a mortgage as if it were a loan (`I bought my house with a mortgage’), but a mortgage is merely the security for a loan. When banks use the term `mortgage’, `secured loan’, or `loan secured on property’, they are talking arrangements which are legally more-or-less equivalent. Although it is common to think of a lender `giving a mortgage’, legally it is the borrower who grants the mortgagor, and is thus called the Mortgagor. The lender is the Mortgagee.
The Mortgagee of a mortgaged property is entitled to take possession of it. This entitlement does not follow from a particular statutory right, but is a logical consequence of the way that mortgages work in English law. A mortgage is created by granting a lease to the mortgagee, or is deemed to be equivalent to so doing (s.87 Lpa1925). By definition, a lease creates a right of possession in favour of its owner.
Although possession is a right, the mortgagee does not have a right to effect possession by force. Unless the property is standing empty, the mortgagee will need to apply to the court for a possession order. Such an order will only rarely be refused unless the property is a dwelling house. In this case, s.36 the Administration of Justice Act (1970) gives the court a power to postpone possession where there is a realistic possibility that the mortgagor will be able to meet the sums due under the loan.
According to s.8 of the Administration of Justice Act (1973), the `sums due’ to not include any sums that arise by virtue of the mortgagor’s failure to meet repayments of an installment mortgage. For example, it is usual for a mortgage agreement to contain a term to the effect that the whole balance becomes due if even one repayment is missed. The effect of s.8 is that the courts can grant relief to the mortgagor without requiring him to raise the entire amount of the loan.
Strictly speaking, a mortgagee does not have to seek possession — with a court order or without — to be able to exercise a power of sale. However, it is unlikely that a mortgagee will be able to sell the property while the mortgagor is still occupying it. Even if he does, he may be liable to the mortgagor for failing to realise a good price (CuckmereBrick V Mutual Finance 1971)
If a Mortgagor is in default of repayments, the Mortgagee may seek to sell the mortgaged property to realize his security. This power to sell is implied into every mortgage made by deed by s.101 of the Lpa1925, which goes on to say that the power of sale arises when the loan repayment becomes due.
However, the power only becomes exercisable (s.103) by the mortgagee if
(i) he has served notice on the defaulting mortgagor and not received payment three months after service; or
(ii) mortgage interest repayments are in arrears by more than two months; or
(iii) the mortgagor is in breach of some other covenant in the mortgage agreement.
The distinction between when a power of sale arises and when it becomes exercisable is important. This is because it is the responsibility of the purchaser from the mortgagor to ensure that the power of sale has arisen. If it has not, the sale is not valid. However, the purchaser does not have to satisfy himself that the power is exercisable. If the mortgagee sells the property before the power has become exercisable, he may be in breach of his obligations to the mortgagor, but it is still a good sale. The effect of sale is to vest the estate in land in the purchaser, free of the mortgage and any other mortgages of lower priority.
In practice, unless the mortgaged property is standing empty, the mortgagee will need to seek an order for possession before sale. He is not obliged by law to do so, but he cannot evict the mortgagor by force, and the property will probably not be saleable unless the mortgagee can give vacant possession.
The power of sale must be exercised in good faith, that is, in order to obtain the best price reasonably achievable. The mortgagee may find himself liable to the mortgagor if he fails to so so.
Consequently, many mortgage lenders prefer to appoint a receiver to handle the sale; the receiver is the agent of the mortgagor, not the mortgagee, so the mortgagee cannot be liable for the negligence of the receiver (unless, perhaps, he is negligent in appointing the receiver).
Particular problems arise for the mortgagee if his charge is over only over a share in the property. This may happen if, for example, the mortgage cannot be enforced against all the equitable co-owners of the property (as, for example, in williams and glynns bank vboland 1981; but note that if the mortgage advance is paid to two or more legal co-owners, the equitable co-owners will be overreached — city of london building society vflegg 1987). s.30 of the Lpa1925 allows a mortgagee to ask the court for an order of sale, and such an order would usually be granted unless to do so would cause exceptional hardship (Lloyds Bank V Byrne & Byrne 1993).
In many legal arguments it can be quite important to determine when the Title to some property or other passess from one person to another. Title to interests in land Strictly speaking, a private citizen cannot have any title to land: all land belongs to the Crown. Instead, we say that there is an `interest in land’, and somebody owns that interest, or owns the title to that interest (same thing). In Unregistered conveyancing, legal title to an interest in land passes on execution of a Deed of Conveyance. In Registered conveyancing, if the interest is registerable, then title passes when the new ownership is entered on the Register.
A deed (technically a Deed of transfer, not a conveyance) is still required to satisfy the Registrar, but the deed itself has no effect on title. Otherwise, if the interest is not registerable, the same rule applies as to unregistered conveyancing.
Typically the buyer and seller contract in advance to transfer the interest and, provided neither party attempts to rescind the Contract, the transfer itself is almost formality. If the remedy of Specific performance would be available to compel one or other party to effect the transfer, then the transfer will be `effective in equity’ from the moment of execution of the contract. Thus courts will recognize that equitable ownership has been transferred from that point; the seller retains the legal title, but on Constructive trust for the seller. For most practical purposes, the buyer owns the interest from contract.
Title to goods The Sale of goods act 1979 states that in a Contract of sale, title passes at the time the contract is made. In many cases this will be at the moment an Offer is accepted (see: Acceptance of offer). Unless the contracting parties stipulate otherwise, and in contrast to most other jurisdictions, in English law there is no automatic passage of title on delivery of the goods. However, title by deliver does apply when the transfer of title is in the form of a gift, rather than a sale.
Title to things in action Things in action (e.g., copyrights, debts) have no tangible presence and therefore present particular problems in the passage of title. There is specific legislation to deal with the passage of many of these articles, e.g., debts (Law of property act 1925), shares in companies (Companies act 1985), patents, insurance policies, etc., and it is difficult to give general rules.
Both the loan (the debt) and the charge (lender rights) are things in action, also called choses in action rather than choses in possession. Both the debt and the lenders rights are choses in action as they are both intangiable. As such the “legal title” to the debt and the lenders rights to be “sold” the sale must comply with s.136 of the LPA 1925, in so much that a express notice of the sale must be given to the borrower.
It is the case that within the UK, notices are not given to borrowers. Therefore, the sale does not comply with s.136 of the LPA 1925 and is classed as an equitable assignment. There are arguments I have seen on consumer forums that the use of s.136 of the LPA 1925 is fraudulent and that s.136 was never designed to be used in securitisation transactions.
These arguments, demonstrate a clear misunderstanding of the law. S.136 was introduced and implemented to define the specific requirements for a legal assignment (transfer of absolute ownership). Therefore, to say that the use is fraudulent is obviously absurd and has absolutely no basis in law.
Another argument, I often come across which is equally absurd and has no basis in law. It is theorised that following the implementation of the LRA 2002, under s.27 the disposition of the charge must be registered and the failure to do so is again speculated to be fraudulent. This clear example of putting the cart before the horse, so to speak.
For there to be a requirement for a disposition to be registered as per s.27, it would stand to reason that there must have first been a disposition. If there has been no disposition, there is no disposition to be registered. As both the debt and the lenders rights are choses in action and can only be legally assigned AFTER an express notice has been given to the borrower disposition of the legal title is prevented by law. So rather than being an example of fraud as promoted by various consumer “help” forums and blogs, it is a clear example of compliance with the law.
It should be clearly noted that all of the documentation relating to the securitisation of mortgages in the UK confirm that the sale is equitable subject to notification to the borrower and that it is only certain individuals (posters on consumer “help” forums” that insist it is otherwise. However, when put to strict proof to substaniate their arguments they fall at the first hurdle.
The various debates and at times childish arguments I have followed on various sites with regard to securitisation, were original ignited by a submission to the Treasury Select Committee by Carmel B Butler. However, in her submission, one would presume for the sake of convenience she made no reference to the court cases that had previously specificially judged the issues she identified. Of course there were the two paragon v pender cases in 2003 and 2005, being a high court case and a court of appeal case. Both resulting in important judgements that for the sake of completness should have been included within her submissions. Nevertheless, the debates with regard to securitisation continue.
I must wonder if these debates would still continue if the success of Ms Butler’s arguments were as well documented on consumer “help” forums as the arguments themselves.
In, Basinghall Finance PLC v Butler [2009] EWCA Civ 1262 (mortgages, assignment, securitisation, privity, Consumer Credit) and previous cases at County Court and High Court, Ms Bulter’s arguments met with little success as evidenced by the requirement of the case to be heard at the COA and furthermore an application to appeal was dismissed.
------------------------------- merged -------------------------------
In summary it is the rule of law that defines as and restricts the sale as an equitable assignment.
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