Types of mortgage
Under the Law of Property Act (1925), which governs mortgage regulations in the UK, there are two types of mortgage, legal and equitable.
A legal mortgage confers a legal estate on the mortgagee (lender). Under the 1925 Act, the only valid legal mortgages are:
A second or subsequent mortgage may be taken out on the same property, provided that the value of the property is greater than the amount of the previous mortgage(s). All mortgages of registered land are noted in the register of charges on application by the mortgagee, and a charge certificate is issued. When mortgaged land is unregistered, a first legal mortgagee keeps the title deeds. A subsequent legal mortgagee and any equitable mortgagee who does not have the title deeds should protect their interests by registration.
Under the so-called equity of redemption, the mortgagor is allowed to redeem the property at any time on payment of the loan together with interest and costs, which may include a penalty for early redemption.
Repossession and foreclosure
In theory, the mortgagee always has the right to take possession of mortgaged property even if there has been no default. However, this right is usually excluded by building-society mortgages until default, and its exclusion may be implied in any instalment mortgage. Where residential property is concerned, the court has power to delay the recovery of possession if there is a realistic possibility that the default will be remedied in a reasonable time. In case of default, the mortgagee has a statutory right to sell the property, but this will normally be exercised after obtaining possession first. Any surplus left after the debt and the mortgagee's expenses have been met must be paid to the mortgagor. The mortgagee also has a statutory right to appoint a receiver to manage mortgaged property in the event of default; this power is useful where business property is concerned. As a final resort, a mortgage may be brought to an end by foreclosure, in which the court orders the transfer of the property to the mortgagee. However, in times of rising property prices, the court will usually take the view that a sale would be more appropriate.
Subjects: Financial Institutions and Services.