Mortgages: nature, creation, source of rights

Specific Interests in Land

Understanding interests…

nature

creation

obligations

remedies

Sources of rights & obligations

Statute

Common law

Instrument

Reading law

Property Law Act

Land Title Act

Common law

Making meaning from diverse provisions: how do they work

together?

Case-generated concepts• interpreting instruments• Interpreting legislation

Property Law Act• Relationship with common law• Relationship with other legislation• What is the purpose of the Act, the provisions?

Land Title Act• Relationship with common law• Relationship with other legislation• What is the purpose of the Act, the provisions?

The nature of the mortgage: Two transactions

Loan agreement• Loan of $ + promise to repay (debt)

Security agreement• Create interest in land to cover debt if default

Nature of mortgage

Security for

repayment

Contract

Interest in land

Charge over land

Creating a mortgage

Form• Requirements for

creation legal interest in land

• Requirements for creation equitable interest in land

Substance• Nature of a Torrens

mortgage• Contrast nature of

common law mortgage

Read the instrument of mortgage (echoes approach to statute)

Commence-ment

Interest secured

Structure of instrument

Persons and things covered•Parties•Respective obligations

Does the Property Law Act apply? How/why?

Who has the power, and where are the protections: statute common law

Read your instrument of mortgage

Who is the mortgagor

Who is the mortgagee

Is it legal or equitable? How do you know?

What is the security

property?

What is the debt that is secured?

What are the obligations of

this mortgagor?

What are the obligations of

this mortgagee?

Does the PLA apply? If so,

why?

Does the LTA apply? If so,

why?

The right to redeem is essential to the nature of a mortgage

Enter into mortgage

1. Legal right to redeem

2. Equitable right to redeem

3. Equity of redemption

Common law concepts

Identify where redemption is provided for

Source of law Provision

Instrument of mortgage

Common law

Property Law Act

Land Title Act

CompareOld System Torrens

Creation of mortgage

Nature of mortgage

Equity of redemption

Foreclosure

Old System Torrens

Creation of mortgage

By parties By registration – ss72, 181, 182 LTA

Nature of mortgage

Conveyance of estate in fee simple

Charge – s74 LTA

Equity of redemption

Equitable proprietary interest vesting in mortgagor, subsisting from date of creation of mtge, being a right to a reconveyance upon discharge of the debt

Right to have a release of the mortgage, land restored free of charge

Foreclosure Bar on mortgagor’s right to redeem

Bar on mortgagor’s right to redeem + conveyance to mtgee for first time

What does it mean to say ‘once a mortgage, always a mortgage’?

Once a mortgage, always a mortgage

The very nature of a mortgage is as security only & mortgagor will be able to redeem the property. Interfering with this alters the very nature of the transaction

Noakes v Rice

NB s74

LTA

What do these phrases mean and imply?

• Making the mortgage irredeemable• Making redemption illusory• Imposing a penalty on the mortgagor• Deriving a collateral advantage• Deriving a collateral advantage that

is harsh and oppressive• Deriving a collateral advantage that

is unconscionable

Phrase Meaning/example

Making the mortgage irredeemable Stopping the mtgor from getting back the security property (Samuel v Jarrah Timber)

Making redemption illusory While technically allowing the mtgor to redeem the property, it’s so marginal as to not be real (Fairclough v Swan Brewery; Knightsbridge Estates v Byrne)

Imposing a penalty on the mortgagor Allowing disproportionate benefit to mtgee via repayments in excess of genuine pre-estimate of damages

Deriving a collateral advantage Receipt of some benefit or advantage beyond repayment of principal & interest

Deriving a collateral advantage that is harsh and oppressive

Look at relative power, whether continues beyond end of mtge; whether commercial arrangement (Noakes v Rice)

Deriving a collateral advantage that is unconscionable

Contemporary view; expansion of unconscionability (Westfield Holdings Ltd v Australian Capital Television; Lift Capital Partners Pty Ltd v Merrill Lynch International)

Case Issue How resolved

✗ Samuel v Jarrah Timber & Wood Paving Corp Ltd

Lender had option to purchase mortgaged property

Clause invalid if it prevents mtgor from getting back his property on paying off the loan so clog

✓ Kreglinger v New Patagonia

Pre-emption arrangement beyond redemption (collateral advantage)

OK if: (1) mtgee hasn’t acted unfairly or oppressively; (2) mtge not made irredeemable: no clog

✓ Knightsbridge Estates Trust Ltd v Byrne

Couldn’t be redeemed for 40 yrs – was postponement of redemption a clog?

would grant relief if oppressive or unconscionable BUT here parties at arm’s length in commercial transaction so no clog

Case Issue How resolved

✗ Fairclough v Swan Brewery

17 year lease mtged. Last instalment due 6 wks before end lease

mortgagor’s right to get the property back illusory so clog

✓ O’Dea v Allstates Leasing

On default, paid all instalments & forfeit property

Not genuine pre-estimate of damages therefore penalty; clog

Contemporary Australian position: Lift Capital ✓

Parties borrowed $ from Lift Capital, gave shares as

security (eq mtge)

Lift Capital Lift Nominees Lift Capital Merrill

Lynch

Numbered shares now in general pool:

mere contractual right to equivalent

shares

Lift Capital in liquidation – can

borrowers recover their shares?

Did Merrill Lynch take free from

equitable mortgage?

IF clog on equity of redemption, Lift

Capital can’t enforce the relevant

clause

��

Lift Capital: what the court said

Is intervention necessary to prevent unconscionable behaviour? [131]

Allowing mortgagee to acquire mortgaged property ≠ necessarily unenforceable [136]

Real issue is power: ie whether unconscionable

Credit | Power | Conscience

Locate Credit (Commonwealth Powers) Act 2010 (Qld)

Purpose

Operation

PLA

LTA

Contract

Consumer credit law

Conscience

Overview

Source of rights & obligations

Formation of mortgage

Nature of mortgage