Mortgages — creation and priorities

Mortgages are the principal proprietary security interest in land. A mortgagor (typically the owner-occupier or commercial borrower) grants a mortgage to a mortgagee (typically a bank or building society) as security for a loan. The mortgagee acquires proprietary rights against the land that bind successors; the mortgagor retains the right to redeem (recover the land) on repayment.

This week studies the doctrinal architecture of mortgages in three layers. (i) Creation: legal mortgages by deed (LPA 1925 s 87 — charge by way of legal mortgage), equitable mortgages (equitable charges; mortgages of equitable interests; anomalous equitable mortgages by deposit of title deeds, abolished by the Law of Property (Miscellaneous Provisions) Act 1989 s 2). (ii) The equity of redemption: the mortgagor''s right to redeem on repayment, protected by equity from clogs and fetters. (iii) Priorities: the rules governing competing mortgages — registered charges under the Land Registration Act 2002, the tabula in naufragio principle for unregistered land, and the rules on tacking.

The topic connects to W2 (registered title; the position of mortgages in the LRA 2002 architecture), W3 (priorities and overreaching), W14 (mortgagee''s remedies — the consequences of default), and to the law of contract (the underlying loan).

Mortgages have been a feature of English land law since the medieval period. The original form was the gage of land — the borrower transferred legal title to the lender with a covenant to reconvey on repayment. The form was reformed by the Conveyancing Act 1881 and consolidated by the Law of Property Act 1925, which abolished the conveyance form and introduced the statutory charge by way of legal mortgage (s 87).

The equity of redemption emerged in the late seventeenth century as the courts of equity developed protections for mortgagors against forfeiture for technical default. The principle that ''once a mortgage, always a mortgage'' protects the mortgagor''s right to redeem on payment of the debt. The clog-on-the-equity-of-redemption rule (Salt v Marquess of Northampton [1892] AC 1; Samuel v Jarrah Timber and Wood Paving Corp [1904] AC 323) prevents agreements that would prevent or unduly fetter the right to redeem.

The Land Registration Act 2002 introduced electronic conveyancing in concept and modernised the priority rules for registered mortgages. The post-2002 case-law has worked out the operation of the new regime, particularly the registered-charge priority rules in Schedule 3 LRA 2002.

(1) Legal mortgages. A legal mortgage of land must be created by deed (LPA 1925 s 52). Section 87 introduced the charge by way of legal mortgage as the standard form: the mortgagor charges their estate as security for the loan; legal title remains with the mortgagor. Pre-2002 alternative forms (lease for 3000 years; sub-lease less one day) were preserved by the LRA 2002 as available for unregistered land but not for registered land, where only the s 87 charge by way of legal mortgage is available.

Five graded practice questions in the panel below.

See the Further Reading panel for Megarry and Wade, Gray and Gray, Sykes on Law of Securities, and the post-LRA 2002 academic commentary.