Mortgage

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A mortgage is a bundle of rights over someone's land, granted as security for a loan. By granting these rights, the borrower encourages the lender to advance more than he otherwise would, or at a more favourable rate of interest, because the lender knows that the risk of default on the loan is much lower. However, the borrower needs to know that the rights he is granting to the lender are real, not notional, rights over his land, and the lender may well be able to enforce them.

In everyday speech people tend to talk of a mortgage as if it were a loan ('I bought my house with a mortgage'), but a mortgage is merely the security for a loan. When banks use the term 'mortgage', 'secured loan', or 'loan secured on property', they are talking arrangements which are legally more-or-less equivalent.

Most kinds ofinterest in land can legitimately be the subject of a mortgage, although these days it is legal estates (see estate in land) -- Freehold and Leasehold -- that are most commonly mortgaged. However, it is possible to mortgage a beneficial interest under a Trust, which is an equitable interest, or even an equitable lease, if you can find anyone to lend on such security.

Although it is common to think of a lender 'giving a mortgage', legally it is the borrower who grants the mortgagor, and is thus called the Mortgagor. The lender is the Mortgagee.

Mortgages of equitable interests must, by definition, be equitable. Mortgages of legal estates can be legal or equitable. A legal mortgage must be granted by deed and, if the mortgaged estate is registered, entered on the Register against the mortgaged estate's title as alegal charge. In unregistered land a legal mortgage can take the form of a long lease -- this was traditionally the way the Mortgagee was able to enforce his rights over the mortgaged property. This practice is called 'mortgage by demise' (if it is of a Freehold estate), or 'mortgage by subdemise' if it is of a Leasehold estate. An equitable mortgage of a legal estate may arise where the full formalities have not been complied with (for example, the grant was not by Deed), or if the deed is defective.

If the mortgaged estate is unregistered, traditionally the lender would ask the borrower to hand over the Title deeds. A legal mortgage that is not protected in this way is called a Puisne mortgage. Where the land is registered, title deeds are irrelevant. However, until 2003 (when the Land Registration Act 2002 came into force) it was necessary for the mortgagor to surrender his land certificate to the Registry, which would then issue a 'charge certificate' as proof of title to the mortgagee. This practice is now no longer supported - evidence of the mortgage is the entry on the register. To be safe from being overridden by other mortgages or dispositions of the land, all mortgages that are not protected by a surrender of title deeds, be they legal or equitable, of registered or unregistered land, must be protected by registration. The article priority of mortgages describes how mortgages are protected, and the rules which dictate the priorities of multiple mortgages of the same land.

In the mortgage relationship, the mortgagor and the mortgagee have various rights; these rights have been developed both by the courts and by the legislature. The balance of rights is a very delicate one. One the one hand, in modern times the mortgage lender is likely to be in a much stronger bargaining position than the borrower, and the courts will be keen to prevent the lender exploiting this situation unjustly. On the other hand, mortgages are a social necessity, and the law must not entirely discourage lenders from operating profitably. For a more detailed discussion of the rights of the parties, see powers of mortgagee and RightsOfMortgagor.

Land and Property Law