Land Law Essay Help: Mortgages (Legal)

Land Law Cases referred to in this section:
Frazer v Jones (1846) 5 Hare 475

Creation of a legal mortgage in registered and unregistered land
A charge does not transfer the legal estate to the mortgagee but instead, it designates certain property as security for debt. The Law of Property Act 1925 (s.87(1)) does however give the Mortgagee (the lender) 'the same protection, powers, and remedies' as if he were a mortgagee by way of demise.

Prior to1926, a legal mortgage of freehold property was made by the same form of assurance and framed on the same principles as an absolute conveyance, subject to a proviso for redemption.

Any purported conveyance of an estate in fee simple by way of mortgage made after 1925 operates (to the extent of the estate of the mortgagor) as a demise of the land to the mortgagee for a term of years absolute without impeachment of waste, but subject to cesser on redemption (Law of Property Act 1925 s 85(2)), so that a first or only mortgagee takes a term of 3,000 years from the date of the mortgage (Law of Property Act 1925 s 85(2)(a)) and a second or subsequent mortgagee takes a term (commencing from the date of the mortgage) one day longer than the term vested in the first or other mortgagee whose security ranks immediately before that of the second or subsequent mortgagee (Law of Property Act 1925s 85(2)(b)).

A legal mortgage of unregistered land can be created by demise, sub-demise or legal charge. A legal mortgage of registered land, on the other hand, can be made only by a charge by deed expressed to be by way of legal mortgage or by charging the estate with the payment of money. The most common and simplest mortgage is by charge, and such a mortgage avoids any conflict with provisions in a lease against subletting or assignment - since 13 October 2003 (the date that the Land Registration Act 2002 came into force), a legal mortgage of registered property can only be made by legal charge.

Similarly, legal mortgages of leases may be made by subdemise or by charge by deed by way of mortgage (Law of Property Act 1925, ss.86(1) and (2)). Under Section 86(2), any attempt to mortgage a lease by an all-out assignment of the whole of the lessee's interest in the property takes effect as a subdemise for a term of ten days less than the term of the lease. This allows for subsequent grant of leases by the mortgagor, each for one day longer than the term of the preceding mortgage. Since, by making a pledge or mortgage of his property, the owner does not cease to be the owner of the property any further than is necessary to give effect to the security he has created, he can mortgage the property again. The mortgagor of a legal estate in land retains his legal estate, and can create further mortgages by demise or charge.

A subsequent mortgage is, as between mortgagor and mortgagee, a complete security on the mortgagor's interest, saving only the rights of prior incumbrancers (Frazer v Jones (1846) 5 Hare 475 at 481); and, on redemption of the prior mortgage, no reconveyance is required, since a mortgage term ceases on payment off of the mortgage (Law of Property Act 1925 s 116). A subsequent mortgagee who pays off the first mortgagee may, however, call for a transfer of the first mortgage, and where there are successive mortgagees they may according to their priority exercise the right of paying off the first mortgage and taking a transfer (Law of Property Act s 95(1), (2)).

In terms of priorities, a mortgagee taking a legal estate still has priority over an earlier equitable incumbrance of which he had no notice when he made his advance, and a legal mortgagee may by his conduct in relation to the deeds either lose his priority over an earlier equitable incumbrance or be postponed to a subsequent incumbrance. The operation of these rules is, however, largely modified by the statutory provisions with respect to the registration of land and, in the case of unregistered land, the registration of puisne mortgages, equitable mortgages and general equitable charges, such registration being deemed to constitute actual notice (Law of Property Act 1925 s 198(1) (as amended)).

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