In a mortgage of unregistered title land, the mortgagee has a right to take possession. In practice, the mortgagor is generally left in possession. In the case of registered title and post-2009 unregistered title mortgages, the mortgagor has a right to possession unless and until displaced under the terms of the charge.
Notwithstanding that in an unregistered title mortgage, the mortgagee is subject to the right of redemption, the mortgagor retains rights to enforce leases and assert the rights generally of the owner, even for pre-2009 Act mortgages. Section 28 (5) of the Judicature Act 1877 confirms the position. However, if the mortgagee takes possession, these rights are displaced. The mortgage may make specific provision in that regard.
The mortgagee is generally entitled to possession of the title documents to the mortgaged property. This applied under the 1881 Act and applies to the 2009 Act. The mortgagee owes a duty of care in respect of the deeds. The mortgagor may be entitled to damages if the mortgagee fails to keep the deeds safe or make them available when the mortgagor is entitled to them, and he thereby suffers loss.
The mortgagor’s right to redeem was asserted by equity from the earliest time. It is an equitable right to redeem, commonly referred to as the equity in the property. Equity was generous in allowing redemption even if the strict terms of the mortgage were not adhered to.
Equity looked at the substance of the relationship. If notwithstanding the format and form of the deeds, a transaction was in essence a security transaction, equity will allow redemption of the secured assets. If for example, a property was sold with a right to re-purchase on payment of a debt, it may be deemed in substance to be a mortgage transaction. Once this is found, the right of redemption necessarily follows.
It is said that the equity looks at the intent and not the form. Some cases of sales and lease back may be re-categorised as a security transaction if this is in substance what they are.
It is a principle of the right to redeem that there must be no clog on the equity of redemption. This means that terms and conditions which have the object or effect of making the property irredeemable or interfere with redemption may be invalid and rendered void. Rights which inhibit redemption such as the mortgagee’s right to purchase are likely to be void.
The mortgagee may not purchase the property or take it in satisfaction of the debt. This is foreclosure and is allowed only in limited cases by National Asset Management Agency.
As the right to redeem is equitable, the courts of equity allow flexibility in relation to breach of the strict legal terms of the right. Attempts to postpone the right of redemption may be invalid. If the relevant monies are repaid or retendered, the security must generally be redeemed.
A mortgagee may have a legitimate interest in compensation for early redemption. Fees and charges which apply. The matter is regulated in consumer cases. A lender may suffer loss in respect of which it is reasonable to provide for, on early redemption. The loss would apply to its loss of profit on early redemption of a fixed rate loan where it may have a corresponding or matching liability on which it suffers a loss.
Penalties may be rendered void by the courts of equity. Clauses which provide for an increase in the rate of interest or late payment A clause providing for a reduction of the rate for timely payment is less likely to be invalidated. However, where there is commercial justification for the differentiation in rates and the increase is not a penalty, it would be upheld.
A mortgagee may not seek to secure a so-called collateral benefit as part of the mortgage transaction. They effectively are clogs on the equity of redemption. This more traditional approach has been relaxed in modern times and some potential collateral benefits are considered on their merits.
The courts have generally allowed greater restrictions while the mortgage subsists. They have taken more critical approach to restrictions and advantages for the mortgagee which apply after the redemption of the mortgage. Collateral advantages may be unreasonable and unconscionable.
The mortgagor enjoys the right to redeem. If he assigns his interest, the assignee or successor enjoys the right. If he assigns part of his property, he retains the right. Even if he assigns the whole, he may retain the right of redemption if he is sued on the debt personally.
Upon the redemption, the mortgagor must pay the loan, interest and proper cost of the mortgagee. If no rate of interest is fixed by the mortgage instrument or underlying loan contract referred to, a rate of 4 percent applied.
The mortgagee is entitled to the reasonable costs of maintaining, protecting, and realizing the security, provided he does so properly. A mortgagee in possession who fails to account to the mortgagor may lose his rights of costs.
Marshalling is available where two or more mortgages are held by the same person over different properties. Second mortgages can insist on marshalling to the extent of requiring the first mortgagee to satisfy itself rateably from each. The Irish courts have not applied the above principle to judgment mortgages.
A lower ranking mortgagee may not simply redeem a higher mortgagee and improve his position. A mortgagee who seeks redemption must redeem the mortgagees ranking prior to him or between its mortgage and on the one being redeemed. It is not clear if this principle applies in Ireland.
A mortgagor entitled to redeem can require the mortgagee to assign the mortgage debt and convey the mortgage property to a third person as he directs on redemption.
A person entitled to redeem may apply to court for an order for sale instead. A court in a redemption suit may order a sale on the request of the mortgagee or others with an interest in the proceeds.
A court may on application of the mortgagor, order a sale even if there are insufficient funds to redeem. The court has a discretion, and it is thought that it would be rarely exercised if the mortgagee objected. The provision can be excluded in a non-housing mortgage case.
If a party mortgages his lands to X, Y and Z, he may seek to redeem X’s mortgage to keep it alive as security over Y and Z’s loan.
The general principle is that if a mortgagor redeems a prior mortgage, it discharges the mortgage and it cannot be asserted against later mortgagees. Otherwise, he would be derogating from his own grants in the later mortgages.
It differs if the mortgagor has assigned a property to a third party. In this case the principle of merger does not necessarily apply. It is a matter of the intention of the person who creates the interest. Equity tends to interpret the mortgage to the advantage of the person redeeming it, so that it will be presumptively kept alive against third party.
Statutory power of leasing.
The general presumption at common law where the mortgagee retains possession was that he also retains management power, including the power to make leases. However, they would bind the mortgagor and not the mortgagee. The mortgagee had power to grant leases as legal holder of the right of possession subject to the mortgagor’s equity of redemption.
The position was changed in statute by the 1881 legislation, which applies to mortgages made after that date and prior to 1st November 2009. The Conveyancing Act 1881 conferred powers to lease on a mortgagor and mortgagee while either was in possession. A lease by the mortgagor bound the mortgagee and a lease by the mortgagee bound the other mortgagee’s and the mortgagor. The mortgagor and mortgagee must comply with certain conditions. This would usually be varied.
Under the 1881 Act, the maximum term of lease is 21 years for agricultural and occupational leases and 99 years for so-called building leases, i.e., by the way of sales. These provisions are removed by the 2009 Act.
Under the 2009 Act, the power to lease is exercised with the consent of the mortgagee. Consent is not to be unreasonably withheld. If consent is not granted, the mortgagee may void the lease if he establishes that both lessee and lessor had knowledge of the mortgage at the time of granting of the lease and the granting has prejudiced them. He must show actual knowledge.
In the case of a mortgagee or receiver appointed by it which still acts, there is a power of leasing granted for a range of purposes, or if the mortgagor consents or courts sanctions it.
The lease must comply with certain other conditions. An 1881 Act lease had to be at the best rent available to take effect within 12 months. There can be no lump sum or fine. There had to be a provision for re-entry, if rent was more than 30 days in arrears.
In the case of a building lease, it had to be before the erection within not more than five years of building (new or additional) or having improved or repaired buildings or agreeing to do the same.
In the case of a lease by the mortgagor, he must within one month deliver the same to the mortgagee or first mortgagee. The lessee need not ensure that this occurred.
The 2009 Act requires that the lease be granted on the best terms that can be reasonably obtained and in accordance with good, commercial practice.
Non-compliance with the 1881 Act did not necessarily invalidate the lease. The Leases Acts 1849 and 1850 potentially validated leases. If the exercise of a power was intended, an invalid lease could take effect in equity as if contract to grant lease provided this is made in good faith. The legislation was designed to validate leases that were invalidated by a technical breach of a power.
A mortgagee might be estopped from denying the validity of a lease. Mere recognition in the sense of not objecting is insufficient. After the 2009 Act, leases which do not comply with the conditions are void.
The statutory power of leasing may be excluded by agreement between the mortgagor and mortgagee. The power is almost invariably excluded.
Similar considerations arise in relation to the surrender of a lease. In either event the acceptance of a surrender could greatly prejudice the value of the property.
Under the 2009 Act, the surrender is subject to mortgagee’s consent which may not be unreasonably withheld. Under the 1911, Conveyancing Act, a mortgagor or mortgagee in possession could accept surrender for the purpose of granting a new lease under the 1881 Act or the deed.
The term of the new lease is not to be less that the duration of any unexpired term of the original lease if it was not surrendered. The following conditions were required for validity. The new lease is to be granted within one month at a rent not less than the rent of that surrendered. Otherwise, it was void.
The 2009 Act applies these provisions relating to surrendered leases retaining the requirements in relation to rent.
In the 1881 Act the powers are subject to variation to the contrary. They are mandatory under the 2009 Act even for non-housing non-mortgages.
A mortgagor may transfer the property. He remains personally liable on the debt. The transferee is likely to enter into an indemnity.
A mortgagee may transfer the property and debt. A transfer of the mortgage will carry the debt.
Notice of assignment of the debt will be required to bind the mortgagor. A mortgagee may create a sub-mortgage out of his right. On redemption of a mortgage, the mortgagee must reassign or re-convey the mortgaged estate to the mortgagor.
In the case of bank and building society mortgages, a statutory form of vacate applies. A simple receipt endorsed on the original mortgage acts as a re-conveyance.
In the case of a registered charge there is a statutory form of release or discharge. This is lodged in the land registry to cancel the mortgage. An electronic form of discharge may be used.