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Mortgages and reality of consent
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A mortgage over land may be set aside where it has been obtained by misrepresentation or undue influence. In Barclays Bank plc v. O’Brien [1994] a mortgage was set aside as against a wife who had been induced to stand as surety for her husband’s debts by a misrepresentation of which the mortgagee had notice. And in TSB Bank plc v. Camfield (1994) the wife had been induced to stand surety by her husband’s innocent misrepresentation that their maximum liability for the business loan was limited to £15 000. The wife claimed the right to have the charge set aside in its entirety whereas the bank claimed that it was a valid security for £15 000. The Court of Appeal decided that the wife’s right to set aside the transaction was ‘an all or nothing’ process.
In CIBC Mortgages plc v. Pitt [1993] the bank advanced money on the security of the matrimonial home which was stated as being for the purpose of acquiring a holiday home but was in fact to pay the husband’s debts. The wife claimed that she had signed the documents reluctantly and sought to set the charge aside on the ground of her husband’s undue influence over her. The House of Lords held that for the wife to set aside the charge, she had to show that the bank had actual or constructive notice of the undue influence and that as far as the bank was aware this was a normal advance for the parties’ joint benefit. In Banco-Exterior v. Mann (1994), the husband wished to charge the matrimonial home as security for his company. The bank sent documents to the company’s solicitor, including a declaration relating to the effect of the charge to be signed by the wife in the solicitor’s presence. The solicitor explained the declaration to the wife who said she had little choice but to sign and the solicitor certified that the nature and effect of the charge had been explained. When the company went into liquidation and the bank sought to enforce, the judge declared that the presumption of undue influence had not been rebutted and that the bank had constructive notice of the undue influence. On appeal, the Court of Appeal held that bank had taken such steps as were reasonable to avoid being fixed with constructive notice and granted the appeal. Hobhouse LJ dissented, saying that the bank had taken no steps to ensure that the wife was independently advised. The decision was followed in Bank of Baroda v. Rayarel (1995), where a wife, her husband and son executed a legal charge over their home to secure the debts of the husband and son’s company. The wife received legal advice before signing and signed a certificate to that effect. The Court of Appeal upheld the High Court’s decision that the charge was valid.
Priority and Protection of Mortgagees
Where there is more than one mortgage over the same property, it is necessary to prioritize the mortgagees’ claims. The system operates to ensure that subsequent mortgagees discover the existence of earlier mortgagees prior to the finalisation of the charge and depends upon whether property is unregistered or registered.
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Mortgage protection in unregistered conveyancing
There are two forms of protection in unregistered conveyancing: retention of the title deeds by the mortgagee or registration under the Land Charges Act (LCA) 1925/1972. A legal mortgagee is required to take the title deeds of the property, and the mortgage is more accurately described as a legal mortgage plus deposit of title deeds. The first legal mortgagee is protected against any subsequent mortgagee since the fact that the title deeds are no longer available for deposit is notice of the prior charge. Legal and equitable mortgagees with deposit of title deeds need do no more to protect themselves.
A mortgagee who does not hold the title deeds must register his mortgage in the Land Charges Registry. The register entry depends upon the type of mortgage. Legal mortgages without deposit of title deeds are registered as a class C.i charge; equitable mortgages by memorandum as a general equitable charge under Class C.iii; and an agreement to create a legal mortgage as an estate contract under Class C.iv charge. Failure to register renders the mortgage void against a subsequent purchaser for value of the legal estate irrespective of notice, although, in the case of a Class C.iv charge, the purchaser must be for money or money’s worth. A purchaser is defined as ‘any person (including a mortgagee or lessee) who, for valuable consideration, takes any interest in land or in a charge on the land’.
A mortgagee may use a priority notice. This is an application to the Land Charges Register by a prospective mortgagee intending to register a mortgage, at least 15 days before that registration is to take place. If the registration takes place within 30 days of the priority notice, registration takes effect as if it had been made at the time the charge was created.
Where the mortgaged land is owned by a company, the charge must be registered within 21 days of the date of the creation of the charge.
Mortgage protection in registered land
Registered conveyancing always requires some entry on the register of charges. The protection will depend upon the nature of the register entry, which depends on the nature of the charge.
Legal mortgages will generally be converted to registered charges effected by sending to the registrar the legal charge, the land certificate plus the registration fee. The charge will be entered in the charges register, the land certificate will be retained and the registry will issue to the mortgagee a charge certificate showing the register entry of the mortgage. Subsequent legal mortgages are protected in the same way, but the mortgagee will be subject to the earlier registered charge and is issued with a second charge certificate listing the earlier charge followed by the later charge held by the mortgagee.
For equitable mortgages with deposit of the land certificate, protection is by notice of deposit of land certificate which gives the mortgagee notice of any attempt to register any subsequent charge or dealing in the property. The mortgagee then protects his interest within the period allowed, failing which the mortgage will be ‘warned off’. This is also sometimes used by legal mortgagees since it is cheaper than registration. Other equitable mortgages obtain identical protection by means of a caution against dealings.
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Where the land is owned by a company, there must be registration of both legal or equitable mortgages with the registrar of companies within 21 days of the creation of the charge, followed by registration with the Land Registry.
Questions
1. What forms of security are used to reimburse the lender?
2. Haw can the mortgagee recover the loan?
3. What systems are used for creating a legal mortgage?
4. What are the ways of creating an equitable mortgage?
5. In what case may a mortgage over land be set aside?
6. What are the two forms of protection in unregistered conveyancing?
7. How is a purchaser of land defined in the Land Charges Act 1925/1972?
8. When must a priority notice be made?
9. How are legal mortgages converted to registered charges?
10. How is mortgagee’s interest protected in case of equitable mortgage with deposit of land certificate?
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