Mortages for Land Ownership: Failure to Pay Instalments

A mortgage is the transfer of an estate or interest in land or other property in order to secure the repayment of a debt or the discharge of some other obligation.^[1]

A lender will have security of a loan where some arrangement has produced rights to the lender, over and above rights to sue the borrower for the money, if the loan is not repaid. In the instant case, Bucksbank is the lender, and security has been obtained via the process of ‘real security,’ allowing Bucksbank to retain some rights.^[2] More specifically, Bucksbank have proprietary security in Beechcroft even though John, Marie and their three children have possession. In this case, a charge has been attached to the property to secure repayment of the loan, thus the mortgagee, or lender, Bucksbank, has ‘the same protection, powers and remedies’ as if the mortgage had been created by way of lease. This is provided in s87 Law of Property Act 1925.

The Land Registration Act 1925 aimed to introduce a comprehensive system of land registration of title to land to determine the ownership of land and resolve issues of priorities between competing interests in land, thus making the conveyancing process more efficient. This registration framework has since been repealed and reformed by the Land Registration Act 2002. Since Beecroft is registered land, these provisions will form the predominant subject matter of the debate. However, with reference to the title, a similar scenario on unregistered land will be assumed in the latter part of this discussion. Due to limitations in word count, the arguments in this essay are non-exhaustive.

Since a mortgage provides security for the performance of an obligation to repay a loan, it follows that if the loan is not repayed, Bucksbank may bring an action for repayment of the loan contract. As the particulars state, John and Marie have failed to pay their mortgage instalments for the last six months. A consequence of failure to pay the instalments is that Bucksbank will employ its right to possession of the property due to the default, or alternatively, with the agreement of John and Marie, order a sale, by virtue of the Law of Property Act, s 91. This was the case in Palk v Mortgage Services Funding plc.^[3] The general requirement is that Bucksbank must ensure that its powers are ‘exercised in good faith for the purpose of obtaining repayment,’ as noted in Downsview Nominees Ltd v First City Corp Ltd.^[4] However, the burden on Bucksbank is clearly evident:

A mortgagee will be restrained from getting possession except where it is sought bona fide and reasonably for the purpose of enforcing the security and then only subject to such conditions as the court thinks fit to impose.^[5]

On the other hand, it could be argued that Bucksbank has an immediate right to possession because there is no provision to the contrary that the reader can infer. This area of law carries a warning as can be seen in Ropaigealach v Barclays Bank plc:

I suspect that many mortgagors would be astonished to discover that a bank which had lent them money to buy a property for them to live in could take possession of it the next day.^[6]

Indeed, there is controversial argument surrounding the issue of whether Bucksbank could take immediate possession, due to possible contravention of Article 8 of European Convention on Human Rights. There is also a requirement that Bucksbank will only be able to take possession of the property, if there is a court order to that effect. One qualification is that if no one is present in the property, Bucksbank can take possession, but because John and his family are present, this would amount to a criminal offence.^[7]

However, there are laws which protect possession by mortgagees of mortgages relating to residential property. The Administration of Justice Act 1970 for example works in conjunction with the courts to grant temporary relief to enable people like John and Marie to assemble the funds needed to redeem the mortgage. This relief is nevertheless limited as the case of Birmingham Citizens’ Permanent Building Society v Caunt shows.^[8] In that case it was held that the court could adjourn proceedings simply so as to ‘afford the mortgagor a limited opportunity to find means to pay off the mortgagee or otherwise satisfy him if there was reasonable prospect of either of those events occurring.’^[9] The courts initially saw the ‘reasonable period’ as amounting to no more than one or two years.^[10] Nevertheless, in Cheltenham & Gloucester Building Society v Norgan, the period was assumed as the whole of the remaining period of a mortgage in relation to what was reasonable, as Waite explains:

The court should take as its starting point the full term of the mortgage and pose at the outset the question: would it be possible for the mortgagor to maintain payment off of the arrears by instalments over that period.^[11]

The factors to be taken into account when deciding the reasonable period for John and Marie would, according to Evans, include the ability for John to make payments now and in the future, the likely duration of his landscape gardening business not doing well, the reason for the arrears, the period remaining in the mortgage, and the adequacy of the security to support the loan and arrears over the repayment period.^[12]

If there is an unpromising likelihood of meeting the requirements in Norgan, there could be a rare opportunity^[13] for John and Marie to remain in possession, pending a sale by Bucksbank if John and Marie are willing to cooperate with the sale, their presence will not depress the price, and they will give up possession on completion.^[14] Authority for this can be seen from Cheltenham and Gloucester plc v Booker.^[15] Following the sale, section 105 LPA 1925 will ensue. It is submitted that, in view of these arguments, the law will be more sensitive to John and Marie in terms of possession and sale, than on Bucksbank.

What determines good title to property depends on whether the land in question is registered or unregistered. If in the current example it is assumed that the land is unregistered, John would have to demonstrate an entitlement to the land which is superior to the claims of others. Such a title is a conveyance and by virtue of s 52(1), LPA 1925, must be made by deed. The title deeds will demonstrate how the title to the land has been derived and will therefore describe the existence of the charge. There is also the Land Charges Act 1972 to consider. This estate contract, s2(4)(iv) Land Charges Act 1972, would protect land charges against John. However, this area of law sees that if the land charge is not registered, the interest will be rendered void if the appropriate statutory criterion is fulfilled, by virtue of section 4(6) of the Land Charges Act 1972. Thus a person will take free from an unprotected land charge if obtained by legal mortgage for money or money’s worth.^[16] In this latter instance, John would be better off because he would have a good title to Beecroft, free from Bucksbank.

Advice to John would depend on whether he could meet the requirements stated in Cheltenham & Gloucester Building Society v Norgan.^[17] If this seems unlikely, John would have to sell due to the registered nature of the land.

Comments

The client has provided some useful points to consider in this problem question. However, due to limitations in word count and the writer’s belief of what areas of law were most important here, not all the points could be adequately explored. If the client requires further reading, it is suggested that the Building Society Acts

(see http://www.opsi.gov.uk/acts/acts1997/97032–u.htm#sch4)

should be explored and the legal interests (minor interests) in further detail.

Bibliography

Birmingham Citizens’ Permanent Building Society v Caunt [1962] Ch 883

Cheltenham & Gloucester plc v Norgan [1996] 1 All ER 449 at 458

Cheltenham and Gloucester plc v Booker, The Times, November 20, 1996

Downsview Nominees Ltd v First City Corp Ltd [1993] AC 312, per Lord Templeman

Palk v Mortgage Services Funding plc [1993] Ch 330

Quennell v Maltby [1979] 1 All ER 568 at 571, per Lord Denning

Ropaigealach v Barclays Bank plc [1999] 4 All ER at 253, per Clarke

Royal Trust Co of Canada v Markham [1975] 1 WLR

Santley v Wilde [1899] 2 Ch 474

Stevens & Pearce, Land Law, Sweet & Maxwell, 3^rd edition, 2005

Footnotes

^[1] Santley v Wilde [1899] 2 Ch 474

^[2] In contrast to ‘personal security,’ Stevens & Pearce, Land Law, Sweet & Maxwell, 3^rd edition, 2005 at 489

^[3] Palk v Mortgage Services Funding plc [1993] Ch 330

^[4] Downsview Nominees Ltd v First City Corp Ltd [1993] AC 312, per Lord Templeman

^[5] Quennell v Maltby [1979] 1 All ER 568 at 571, per Lord Denning

^[6] Ropaigealach v Barclays Bank plc [1999] 4 All ER at 253, per Clarke

^[7] Criminal Law Act 1077 s6

^[8] Birmingham Citizens’ Permanent Building Society v Caunt [1962] Ch 883

^[9] Ibid at 891, per Russel LJ, quoted in Stevens and Pearce

^[10] Royal Trust Co of Canada v Markham [1975] 1 WLR

^[11] Cheltenham & Gloucester plc v Norgan [1996] 1 All ER 449 at 458

^[12] Ibid, Stevens and Pearce, Ibid at 527

^[13] Lord Denning implied as much in Quennell v Maltby, Ibid

^[14] Stevens & Pearce, Op Cit at p 526

^[15] Cheltenham and Gloucester plc v Booker, The Times, November 20, 1996

^[16] Law of Property Act 1925, s 87(1)

^[17] Op Cit