'A mortgage...is a transaction under which land or chattels are given as security for the payment of a debt or the discharge of some other obligation' - Santley v. Wilde [1899] 2 Ch 474, per Lidley J. Explain the way in which a mortgagor can enforce the security it receives under a legal mortgage of land. Compare the rights given to mortgagees under legal mortgages of land. Do you consider that the law provides adequate safeguards? Does the law strike a fair balance between rights of lender and borrower?

Introduction

A mortgage is a transaction by which a charge is created on a property as a security for a loan taken by the mortgagor from the mortgagee. The property is used as a security for the mortgagee. As such, mortgage gives rights to both the mortgagor and the mortgagee. It is important to balance the rights of both the parties. The balance in created to give mortgagee a security for his loan and to give mortgagor certain protections so that the mortgagor cannot take advantage of his position as a person who needs a loan. This essay argues that the law strikes a fair balance, considering the mortgagor’s position and the possibility of the mortgagee using undue influence to include unconscionable terms of mortgage.

Enforcement of Security by Mortgagor

The primary right of the mortgagor is the right to redeem the mortgagor on the repayment of loan and payment of interest. Then the mortgage is at an end (McKenzie and Phillips, 2014, p.451). This right of redemption is a matter of contract and the contract can provide the date on which, and not before or after, the mortgage can be redeemed (Kreglinger v New Patagonia Meat and Cold Storage co, [1914] AC 25).

As the property is given as security for the loan, the mortgagor still retains his legal estate in the property. However, these rights of the mortgagor are subject to any rights that the mortgagee gets under the mortgage. The sum total of the mortgagor’s rights in the property during the period of mortgage, are called as the ‘equity of redemption’. Equity of redemption includes the right to redeem, but they are not the same.

There are two points here with respect to mortgagor’s rights that are important. Firstly, the right to redeem is seen to be a very important right of the mortgagor and any arrangement, that acts in the nature of clog on the right, that is prevents the mortgagor from exercising his right to redeem, is generally unacceptable. Secondly, once the mortgage comes to an end, any continuing burdens imposed by the mortgage on the mortgage property are generally unacceptable. The reasoning behind this is that mortgage property is only considered to be a security for the loan. Once, the loan is paid back by the mortgagor, there is no need to continue burdens on the property. Thus, there must be no clogs on the equity of redemption.

Courts have gone a long way in protecting the rights of the mortgagor. In Samuel v Jarrah Timber & Wood Paving co. Ltd., [1904] AC 323, referring unfavourably to the old maxim, “once a mortgage, always a mortgage”, held that there can be no valid contract between the mortgagor and the mortgagee, that prevents the mortgagor from getting back his property on paying back what is due on his security.

Rights of Mortgagees

The purpose of a mortgage is to provide a security to the mortgagee for the loan he is giving to the mortgagor. This security is so that the mortgagee can realise if the mortgagor fails to repay the loan. In such a circumstance, the mortgagee can use the property to realise the amount due to him, without having to approach a court. There are other remedies that are available to the mortgagee. One remedy is the remedy of foreclosure, which the mortgagee can exercise if the mortgagor cannot repay the loan. The mortgagee can exercise this right by applying to the court. The mortgagor can however ask the court for sale instead of foreclosure as this will give him the proceeds of the sale in excess of the loan owed by him to the mortgagee.

The mortgagee has the right to possession as a preclude to sale (MacKenzie and Phillips, 2014, p.460). This will help minimise the risk of the mortgagor sabotaging the sale (Dixon, 2014, p.446). Or else, the mortgagee may use the possession to realise the amount owed to him by the mortgagor, by for example, renting out the property and using the rent money towards the realisation of the loan. If the property is a dwelling house, then the mortgagee may face problem in getting possession of the same. The mortgagor has statutory protections in such cases (Administration of Justice Act 1970, s.36), where the court may not allow or adjourn applications for possession, especially if the mortgagor shows that he will be able to make the payments within a reasonable period of time. However, the mortgagee may take possession without court intervention also (Ropaigealach v Barclays Bank, [2000] QB 263). Important cases in this area (Cheltenham and Gloucester plc v Krausz, [1997] 1 WLR 1558; Cheltenham and Gloucester v Booker, [1997] 1 FLR 311; Palk v Mortgage Funding Services plc, [1993] 2 WLR 415), have opened important questions with respect to mortgagee’s rights (Dixon, 1998, p.279).

It is important to note that even in cases where the mortgagor has not been able to make his payments, the court may give him certain protection as against sale or foreclosure. Thus, the mortgagee has to approach the court for remedy for sale, possession or foreclosure. This allows the mortgagor extra time to make the payments. At the same time, even if the mortgagee is able to procure right to sell the property, he has to ensure that he gets the best price for the property that is reasonable obtainable, so that his debt is satisfied and the mortgagor does not lose the benefit of obtaining part of the proceeds of the sale (Standard Chartered Bank v Walker, [1982] 1 WLR 1410). It is important to note that the remedies given to the mortgagee are cumulative in nature and he has the option to exercise on or the other remedy until the full loan is repaid to him. The mortgagor can press an action on the contract for recovery of the debt, because under the mortgage contract, the mortgagor has made an express promise to the mortgagee to repay the loan taken. The mortgagee has to repay the loan on or before the legal date of redemption. The mortgagee has a personal action on the contract for repayment and accordingly can get a personal judgement debt satisfied (Alliance & Leicester v Slayford, [2000] EWCA Civ 257). The notion of possibility of undue influence by the mortgagee is also important, especially where the mortgagor can show that the transaction was manifestly disadvantageous to him (Andrews, 2004).

Conclusion

Both mortgagors and mortgagee get certain rights under mortgage law. However, it is true that the balance is titled in favour of the mortgagor. The reasoning behind this is to be found in the traditional notion of a mortgagor being a person who can be taken advantage of by the mortgagee. Therefore anything that acts as a clog on his right to redeem, or anything that creates an unconscionable continuing advantage for the mortgagee, after the end of the mortgage, is not allowed by courts.

At the same time, the mortgagee’s right and security is also protected by the law and courts, but only to the extent that the mortgage property forms security of the mortgage. Therefore, even where the mortgagor is unable to pay the loan, the court allows postponement of sale or foreclosure to allow time to the mortgagor to pay the loan even after the date of redemption. It is fair that the mortgagor should get some advantage because it it true that the mortgagee is in a position of advantage and may exercise undue influence over the mortgagor in such a situation.

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