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Land Law – Mortgage – Priority of Mortgages
It is possible for a property to be secured by many mortgages, and these mortgages must be repaid in a specific order.
When a property is sold and the proceeds cover all mortgage payments in full, there is typically no problem. But, you can be questioned about any areas of the property where there is a deficiency or a negative equity scenario. In such cases, you should take into account the precedence of mortgages, as well as the distinctions between registered and unregistered land and equitable and legal costs. First, we'll talk about legal charges, and an example should assist clarify this.
On May 18, 2017, Tom gave the Tyne and Wear Building Society a mortgage, which was recorded with HM Land Registry on June 9 of the same year. First legal charge over the property is held by Tyne and Wear Building Society. On October 25, 2019, David provides Seaham Shore Bank a second mortgage, which is recorded with HM Land Registry on November 17, 2019. A second, or subsequent, legal charge over the property is held by Seaham Shore Bank. David's employment ends in April 2020, and he falls behind on some of his home payments. After obtaining a power of sale, Tyne and Wear Building Society sells the property for £120,000. £110,000 is still owed under the terms of the mortgage to Tyne and Wear Building Society, and £25,000 is still owed to Seaham Shore Bank. In light of the mortgagees' priority, how will the sale proceeds be divided?
Every legal charge must be entered into the title deeds' charges record (Chapter 4), where it will be ranked first among the
not the creation date, but the registration date. Therefore, in the event of negative equity, a delay in mortgage registration could have fairly dire effects. But in this case, Seaham Shore Bank would still receive £10,000 when Tyne and Wear Building Society discharges their entire mortgage debt. If Seaham Shore Bank wished to attempt to recover the remaining £15,000 that was owing to them under the terms of the contract, they would then need to take additional legal action against David.
Equitable mortgages
An example demonstrates how mortgages are prioritized while addressing legitimate mortgages. This is not the same as an equitable mortgage, which are given by a mortgagor who either has equitable ownership of the land or when ownership is lawful but the deed hasn't been properly completed or registered.
In the case of registered or unregistered land, there are additional significant distinctions to take into account regarding the precedence of equitable mortgages, as each has a distinct mechanism for determining whether equitable mortgages are enforceable against future buyers.
Titled land
An equitable mortgage in registered land must be safeguarded by a note on the title deeds in order to guarantee its precedence.This kind of protection for equitable mortgages means that the mortgagee will take precedence over subsequent mortgagees.
Unregistered territory
It is typical for the first mortgagee to own the title deeds when dealing with unregistered land. This basically stops the mortgagor from engaging in any more transactions involving the land, including awarding any later mortgages. This kind of depositing the title deeds with a mortgagee would be adequate proof of an equitable mortgage.
Depositing deeds with the mortgagee was insufficient proof of an equitable mortgage after the Law of Property (Miscellaneous Provisions) Act 1989 was passed, as all land interests had to be constituted by a deed. Therefore, any ensuing equitable
Mortgages must now be secured by the registration of a C(i) land charge which will supersede any subsequent interests. If not, the mortgage will be nullified and void against any prospective buyer for significant consideration.
It is possible for a property to be secured by many mortgages, and these mortgages must be repaid in a specific order.
When a property is sold and the proceeds cover all mortgage payments in full, there is typically no problem. But, you can be questioned about any areas of the property where there is a deficiency or a negative equity scenario. In such cases, you should take into account the precedence of mortgages, as well as the distinctions between registered and unregistered land and equitable and legal costs. First, we'll talk about legal charges, and an example should assist clarify this.
On May 18, 2017, Tom gave the Tyne and Wear Building Society a mortgage, which was recorded with HM Land Registry on June 9 of the same year. First legal charge over the property is held by Tyne and Wear Building Society. On October 25, 2019, David provides Seaham Shore Bank a second mortgage, which is recorded with HM Land Registry on November 17, 2019. A second, or subsequent, legal charge over the property is held by Seaham Shore Bank. David's employment ends in April 2020, and he falls behind on some of his home payments. After obtaining a power of sale, Tyne and Wear Building Society sells the property for £120,000. £110,000 is still owed under the terms of the mortgage to Tyne and Wear Building Society, and £25,000 is still owed to Seaham Shore Bank. In light of the mortgagees' priority, how will the sale proceeds be divided?
Every legal charge must be entered into the title deeds' charges record (Chapter 4), where it will be ranked first among the
not the creation date, but the registration date. Therefore, in the event of negative equity, a delay in mortgage registration could have fairly dire effects. But in this case, Seaham Shore Bank would still receive £10,000 when Tyne and Wear Building Society discharges their entire mortgage debt. If Seaham Shore Bank wished to attempt to recover the remaining £15,000 that was owing to them under the terms of the contract, they would then need to take additional legal action against David.
Equitable mortgages
An example demonstrates how mortgages are prioritized while addressing legitimate mortgages. This is not the same as an equitable mortgage, which are given by a mortgagor who either has equitable ownership of the land or when ownership is lawful but the deed hasn't been properly completed or registered.
In the case of registered or unregistered land, there are additional significant distinctions to take into account regarding the precedence of equitable mortgages, as each has a distinct mechanism for determining whether equitable mortgages are enforceable against future buyers.
Titled land
An equitable mortgage in registered land must be safeguarded by a note on the title deeds in order to guarantee its precedence.This kind of protection for equitable mortgages means that the mortgagee will take precedence over subsequent mortgagees.
Unregistered territory
It is typical for the first mortgagee to own the title deeds when dealing with unregistered land. This basically stops the mortgagor from engaging in any more transactions involving the land, including awarding any later mortgages. This kind of depositing the title deeds with a mortgagee would be adequate proof of an equitable mortgage.
Depositing deeds with the mortgagee was insufficient proof of an equitable mortgage after the Law of Property (Miscellaneous Provisions) Act 1989 was passed, as all land interests had to be constituted by a deed. Therefore, any ensuing equitable
Mortgages must now be secured by the registration of a C(i) land charge which will supersede any subsequent interests. If not, the mortgage will be nullified and void against any prospective buyer for significant consideration.
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