Rights of the mortgagee

Rights to title deeds or charge certificate

Under the pre-1926 type of mortgage the mortgagee necessarily had a right to hold the title deeds to the property, since the grant of the mortgage conveyed the legal estate to the mortgage. Under the modern system however, the mortgagee at most has only a lease or sublease and it is not normal for a tenant to hold his landlord’s deeds. It is nonetheless desirable for the mortgagee to take the deeds, since this will usually prevent the creation by the mortgagor of the later interests in the property without the knowledge of the mortgagee. Accordingly, ss. 85(1) and 86(1) specifically provide that a first mortgagee has the right to take the title deeds from the mortgagor. A mortgagee under a charge by way of legal mortgage is expressly given similar rights (s. 87(1)). In practice all banks and building societies, and any private mortgagee who takes proper advice, will insist on exercising this right. Of course, the mortgagor may well need upon occasion to see the deeds: he may, for example, need to check them to settle a dispute about the boundary line of the property. Accordingly LPA 1925, s. 96(1), gives the mortgagor the right to inspect the deeds and make copies, as long as this is done at a reasonable time and any costs incurred by the mortgagee are paid. The equitable mortgagee has a similar equitable right to the deeds but, since the most common form of equitable mortgage was that which involved deposit of the deeds, this was rarely a problem.

In the case of registered land a legal charge is created only when the charge is substantively registered. Section 27(2)(f), LRA 2002, provides that the grant of a legal charge is a disposition that is required to be completed by registration. On the application being made, the registrar will enter the charge in the register as the proprietor of the charge. Before the 2002 Act, such a registration would then have led the registrar to issue a new certificate in relation to the charged estate: a Charge Certificate. This was held by the charge (rather like holding the title deeds of unregistered land). Now, however, such certificates are no longer issued, though you may still encounter old ones. All that matters is the content of the register itself. 

Right to possession of the land

Since a legal mortgagee has a lease or sublease (or is treated as though he had) he has a right to possession of the land from the moment that the mortgage is created. This right may well be restricted by a term n the mortgage deed that possession will not be taken whilst the mortgagor makes regular payments.

Usually the taking of possession is only normal as a preliminary to the remedy of sale and is not otherwise generally exercised. However, at some points in recent years, it became more common for lenders to seek possession of a property in order to let it. This may cause problems for a mortgagor because the interest under the mortgage will continue to mount. In Palk v Mortgage Service Funding plc [1993] Ch 330, the Court of Appeal said that where sale was preferable in the mortgagor’s interests a sale would be ordered instead. The taking of possession must, in any event, be exercised peaceably and this may necessitate an application to the court. However, if peaceable re-entry is possible without resort to the court this is perfectly acceptable. However, it should be noted that the case proceeded on the assumption that the bank had taken possession peacefully but without those facts ever being established. In practice it may be difficult or impossible to regain possession peacefully in the absence of an application to the court. Where it is possible, it will be attractive to the mortgagee because it is a means of avoiding the protection available to the mortgagor when a court order for possession is sought.

Insuring at the mortgagor’s expense

Normally, the mortgagee will wish to ensure that the property is properly insured, since should it be damaged the value of the mortgagee’s security will be diminished. Accordingly, most mortgages include express terms concerning the maintenance of insurance. If there is no express agreement,LPA 1925, s. 101(1)(ii), implies into every mortgage made by deed a term allowing the mortgagee to insure the property against loss or damage by fire. The premiums paid become a charge on the property in addition to the mortgage advance. The amount of the insurance and the mode of application of any sums arising from the policy are further regulated by LPA 1925, s. 108.

Right to lease

A mortgagee who has taken possession has always had a right to grant leases. These, however, would be subject to the rule that there must be no clog on the equity of redemption and so would not survive redemption by the mortgagor, were it not for the statutory power to lease under LPA 1925, s.99(1), which gives rights similar to those of the mortgagor. Any lease created under the statutory power will also bind the mortgagor. Since possession by the mortgagee was normally only a preliminary to sale, such leases used to be rare but have occurred on occasion in recent years.