Mortgages

Mortgages and Charges

A mortgage of unregistered land  involves transfer of actual ownership or title to the property, subject to the mortgagor’s right to redeem. The mortgagor’s rights which reflect the fact that the transfer is by way of security, are protected by equitable principles. 

Most title in Northern Ireland is now registered in the Land Registry.  Title has been compulsorily registered into Land Registry in all counties since 2003.  A registered owner may make a charge of registered land in accordance with the land registration legislation.  

Where the borrower covenants to repay the sum charge, there is an implied covenant to pay the principal and interest and to pay half yearly interest on any lump-sum, paid sums of principal, if not paid when due.  The form of charge for such mortgage may provide to the contrary.

Land Registry Charge

The charge should be in the form specified by the Land Registry rules and should contain words of charging.  The prescribed form is not mandatory, but the key charging word should be used. The principles applicable to mortgages apply to registered charges. Some reflecting the fact that a charge does not transfer ownership, do not apply.

It should be executed by a solicitor witness, or two witnesses. Where a charge relates to part of the land it must like a transfer include or refer to a Land Registry Compliant map.

A charge deed may contain a provision that no dealings are to take place with the registered land without the consent of the mortgagee bank.  This must be specifically applied for and registered.  It is not enough to place it in the mortgage. The inhibition will prevent further charges without the consent of the lender.

Priority of Registered Charges

The order of registration determines priority. As between two legal charges the first registered has priority.  It does not matter which is created first.

Where a charge is created to secure further advances and an entry on the folio so provides, further advances would be given priority over later charges.   Apart from this if a second charge holder gives notice to the first charge holder, later advances by the first charge holder will  have no further priority after that date, existing advances will have priority.

A legal charge given for consideration will generally have priority over a charging order which is registered after it is created or before it is registered.  This is on the basis that the charging order is not for consideration.

A priority search may be made in advance of the grant of a charge or other dealing with registered land.  The  search may be made in favour of a purchaser who has contracted for the purchase of property or a lenders who have agreed to advance a loan. Once properly made, it gives priority to an application lodged within 40 days on default of the transaction.  Effectively the register is frozen for this period.

Company Security

A document expressed to be executed as  deed acting by a director and secretary or two directors is deemed to be equivalent to execution under seal. The Companies Act 2006 provides that a company can execute a document by affixing a seal and signing by two authorised signatory or a director in the presence of a witness.

A charge must be within the powers of the company.  Where a third party deals in good faith with directors it is not affected by the transaction being outside of corporate powers.  

A charge granted by a company must be registered in Companies House within 21 days. Where a charge is executed outside United Kingdom it must be registered from 21 days from date it would have been received in the Northern Ireland’s company’s office in the course of post if sent.

Failure to register a company charge in the register is an offence.  Moreover, the charge is deemed void against liquidator, administrator, and creditors of the company.  The debt remains and the charge is enforceable as between the parties.  However, it ceases to be available when it is most needed; in the event of insolvency of the company.

Charges by limited liability partnerships incorporated under 2002 legislation must be registered in Companies House.  They must be registered within 21 days in the same manner as with the company.

A court may grant an extension of time for registration where a charge has not been registered in respect of a company or LLP.  However, this will not prejudice intermediary acts in the meantime.

Equitable Mortgage

An equitable mortgage may be granted by somebody who has an equitable interest only.  Another forms of equitable mortgage may arise where a mortgage has not been formalised. 

An equitable mortgage may be created by deposit of the title deeds.  They must be lodged with the intention of creating a mortgage.  This will not be the case if they are lodged for safekeeping only.

The land certificate may be lodged by way of equitable charge.  The holder of the equitable charge should protect the interest by way of a notice of the deposit. The land certificate is no longer required on transfers, so that holding the Land Cert is not enough.

Priority of Mortgages

It is possible to create any number of  mortgage over property. 

Some second mortgages are registered by the Consumer Credit Act.  A second mortgage may be a breach of the terms of the first mortgage.  Once the second mortgagee service — mortgage on the notice of the second mortgage and the first mortgagee, the first mortgagee will have no further priority

The first registered mortgage has priority over later registered mortgaged. A later legal mortgage may take priority over an earlier equitable mortgage. 

The legal mortgagee  will only have priority if it is a bona fide  mortgagee for value.  This puts an onus on him to establish title.  Where title deeds are lodged by way of equitable mortgage he will normally become on notice of an equitable mortgage by lodging. Wherein contrast, the equitable mortgage arise due to the large creation of an earlier mortgagee, non-registration or a loan agreement out of mortgage than the later bona fide a mortgage giving value by way of new loan moneys may obtain priorities.  However, if usual investigations would have disclosed the earlier mortgage then it will maintain priority.

EJO Charging Order

A debt for money due may be the subject of an order charging land. A creditor or its representative may lodge a copy court judgement, and a notice of intention to a money judgment with the EJO.  The EJO gives the debtor 10 days notice by post on which to pay.  After that the creditor may apply to enforce the debt. 

An application may be made to the EJO to discover assets of the debtor.  The EJO officer interviews the debtor under oath in relation to his assets.

The EJO may be requested to make an order to charge property.  It issues a notice of intention on the debtor.  In the absence of an objection the charging order issues.  If an objection is raised, it is listed before the Master of the EJO.  The EJO may hear the application and decides whether to grant an order.

Registration EJO Order

The EJO order must be registered in Land Registry or Registry of Deeds.  It appears as a burden on the folio in the Land Registry. An order charging unregistered title land may be lodged in the Registry of Deeds with the memorial and fee.

Where the debtor is not registered as owner of land, a notice may be registered on the folio.  For as long as notice is in place, the debtor may not be registered as owner unless the charge has been satisfied.

An order charging land is void against the official receiver  trustee in bankruptcy if within 28 days, the debtor is adjudicated bankrupt or notice is given to petition for bankruptcy.

Other Charges

The Statutory Charges Register is separate to the Registry of Deeds and Land Registry .An entry on the statutory charges register binds the land and all owners.  

The Statutory Register deals with statutory charges such as those arising from planning and other legislation. It may provide for a monetary charge or a restriction or limitation in relation to the use of the property.

There is a procedure whereby an order may be made charging land in respect of rates owed in respect of that land.  This has priority over all other charges save charges securing moneys to the crown.

Rights of Mortgagor

During the course of a mortgage the mortgagor retains possession and use of the property. He has certain statutory rights including rights to lease, which are almost invariably varied or removed by the terms of the mortgage.

The borrower is entitled to copies of the title deeds. The lender will generally retain the title deeds in the case of Registry of Deeds title.  In the case of land registry title the lender is not strictly entitled to the land certificate.   It will be entitled to a charge certificate.

Where a mortgage by deposit of the  land certificate is in place, the lender is entitled to the land certificate.

Rights of Mortgagee

A mortgagee’s interest in the mortgage may be transferred, subject to what the mortgage might provide.  Notice of the transfer must be given to the mortgagor.  The mortgage may be assigned with the debt.

The Conveyancing Act provides that the lender has, in the absence of anything to the contrary in the mortgage, power to insure the premise and the cost shall be charged in the property in addition to the mortgage money, with interest at the same rate. 

The insurance is not to exceed the amount stated in the deed or two-thirds of the amount, which would be required in the case of total destruction in the absence of anything to the contrary.  This will usually be changed to require insurance in the full reinstatement value. The mortgagee may not insure when the borrower keeps up the insurance required under the deed or in the absence of any requirement to the minimum statutory amount.

A mortgagee in possession has power to grant and surrender leases.

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