Mortgage Essay Question

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First paragraph

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A mortgage is a pledge of land as security for the repayment of a loan, it is the relationship between a borrower and a mortgage lender that is both a personal covenant and an interest granted over land (s.5 (a) Transfer of Property Act).

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Second paragraph

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The mortgagee’s right to take possession arises automatically at common law and is exercisable even if the mortgagor is not in default (Four Maids). However in practice, possession is more likely to be sought only if the mortgagor is in breach of the mortgagee agreement. Usually a court order for possession will be necessary in order to shield the lender from criminal and civil liability. Taking possession without a court order doesn’t contravene Article 1 of the European Convention (Horsham Properties).

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Third paragraph

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When it comes to what constitutes legitimate interests of the lender and the borrower, it can be seen from Esso Petroleum v Harper’s Garage that they are those worthy of protection. Interests include being able to repay the loan and having possession of the property. The mortgagee’s right to possession can be argued to create an unfair balance between the position of the mortgagor and the mortgagee.

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Fourth paragraph

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Regarding equitable mortgages, the equitable mortgagee has no right at law to possession because he holds no legal estate (Ashley Guarantee Plc v Zacaria). If a sale is ordered by the court, it will also be ordered that vacant possession is to be given.

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Fifth paragraph

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S.36 of the Administration of Justice Act 1970 was put in place with the aim of protecting borrowers. This statutory discretion is available only as regards occupied dwellings and when it seems like that, within a reasonable time, the mortgagor will be able to pay any sums due or be able to remedy any other breach of the mortgage (Cheltenham & Gloucester Building Society v Norgan).

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Sixth paragraph

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In the harsh economic climate of the late 1980s-1990s, repossessions increased in frequency and affected the whole market in land. A number of cases have therefore focused on the issue of when the court might exercise its section 36 discretion, some of which have concerned the borrower’s likelihood of finding employment and repaying arrears and others on the chances of her being able to sell the land within a reasonbale period of time.

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Seventh paragraph

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In Cheltenham & Gloucester Building Society v Norgan, the Court of Appeal had to consider what would amount to a reasonable period for the purposes of s.36 discretion. It was held that from 13 years from when the claim was made for a possession order would be a reasonbale time. A borrower is only entitled to seek relief under s.36 if an action for possession has been brought. This seems an extensive amount of time, especially from a business perspective and may be understandable why a mortgagee might not seek a court order to exercise their right of possession.

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Eigth paragraph

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The case of Ropaigealach v Barclays Bank Plc demonstrated that a court order for possession is not always necessary, as it was held that a literal approach of the wording in s.36 denied the borrowers the assistance of the court in postponing the sale. Hart J in the case of Barcalys Plc v Alcorn felt expressed that he interpreted the statutory discretion to have intended to only operate when the mortgagor was still in possession of the whole property and was seeking time. This seems fair as suspension of possession would allow the statute to be used unreasonably to frustrate the legitimate claims of the lender (McMurty, 2002).

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Ninth paragraph

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While it may seem that mortgagee’s right of possession is imbalanced in favour of the mortgagor, there is law in place that regulates this right extensively. As can be seen from the Financial Services and Markets Act 2000 which holds that most mortgages are subject to the regulation imposed by it. It requires mortgages within its ambit to adhere to the code of conduct set out within it which makes it clear that repossession is a last resort in cases of default. It also requires the lender to draw up their own code of conduct, policy and procedures regarding possession.

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Tenth paragraph

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Possible reform
The Citizens Advice Bureau highlights the danger within s.36 of the Administration of Justice Act in that a mortgagee may seek possession without an order that is established within it. It expresses that it is acceptable in situations where the property may have been abandoned, however would not be in situations where the mortgagee is still in possession and an order should be sought. It can be argued that using the right of possession may leave the borrower in a vulnerable position. However, the alternative argument is that if the mortgagee genuinely feels that the loan won’t be repaid in time then they should be able to exercise their right without the unnecessary hassle of getting a court order.