MORTGAGES copy.docx - Property A Revision Notes MORTGAGES INTRODUCTION TO MORTGAGES Mortgages – primary security interest affecting land Estates in

MORTGAGES copy.docx - Property A Revision Notes MORTGAGES...

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Property A Revision Notes MORTGAGES INTRODUCTION TO MORTGAGES Mortgages – primary security interest affecting land Estates in land can be “mortgaged” by the owner – fee simple (most common), life, and leasehold estates Once a mortgage is registered on title, a mortgagor must seek consent from the mortgagee to grant lesser estates or interests in land (leasehold estates, easements and restrictive covenants) THE PURPOSE AND TYPES OF SECURITY INTERESTS What is the nature of a security interest? o A security interest is a non-possessory, proprietary interest in land or goods, held by a lender as security for repayment of a loan or debt Why is “secured” debt better than “unsecured” debt? (Why is a creditor with a secured debt in a better position than a creditor with an unsecured debt?) o Credit transactions and loan arrangements are important in a consumer-oriented society. Loans are used for domestic and business purposes, and lenders usually advance funds only on security against another asset. A secured loan allows the lender to exercise remedies over specific property in preference to unsecured creditors if the borrower defaults. In general, a secured creditor can exercise these powers without intervention by a court Other forms of security interest include: o Charges, floating charges, pledges, liens and hire-purchase agreements THE NATURE AND TYPES OF MORTGAGES Mortgages under General Law Land o Under a “true” mortgage (such as a legal mortgage of General Law Land), the lender ( mortgagee ) takes legal title to the property while the debt is outstanding, but the lender must reconvey it to the borrower ( mortgagor ) when the debt is repaid. Although the mortgagee has legal title, s/he may not generally exercise the usual rights of ownership (such as the rights to use or sell the land) unless there has been a default in payment. Thus, the mortgagee’s ownership is said to be by way of security only, and the mortgagor retains an equitable interest in the property o The equitable interest of the mortgagor developed historically from the protection offered by the Courts of Equity to the mortgagor against the harsh or unconscionable exercise of the mortgagee’s rights as legal owner. This interest is referred to as the mortgagor’s “equity of redemption” General Law Land mortgage – legal title to land conveyed to mortgagee + right to redeem by mortgagor upon payment of debt in full Legal mortgage o A legal mortgage must meet prescribed formalities (same as other interests in property) – SS 52, 73, 73A PLA o Under General Law Land, the mortgagor conveys the legal title to the secured property to the mortgagee. The mortgagor retains an equitable interest in the secured property called an equity of redemption Equitable mortgage
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