What is the legal status of a mortgage deed if the mortgage agreement is deemed void? NRAM/NRock

[UNRAM]

I have a residential mortgage offer that has not been signed by the lender.

Is a mortgage offer - fulfilling all of the characteristics of a contract (for a disposition of land), with its own terms and conditions, subject to the Law Of Property Miscellaneous Acts 1989 section 2?

If so, and if it fails to comply, is it void?

Following on from this: if it the mortgage agreement is void due to technical error, is the mortgagee deed therefore void ab initio?

This thread only raises questions relevant to residential mortgages.

This thread makes a clear distinction between a mortgage agreement and a mortgage deed, and asserts in accord with recent legal precedent that a mortgage deed does not have to comply with the formalities of Section 2 e.g. Lamb vs Mortgage Business, and Eagle Star vs Green.

This thread assumes a mortgage contract to be a contract for the creation of a future disposition as was highlighted in Section 27 of Helden v Strathmore Ltd [2011] 2 EGLR 39: http://www.bailii.org/ew/cases/EWCA/Civ/2011/542.html. The contract (agreement) therefore is a distinct legal entity from the mortgage deed, and agreement by the borrower precedes granting the charge by deed.

Section 27. Mr Helden's case on section 2 is hopeless. It proceeds on a fundamental misunderstanding of the reach and purpose of that section, a misunderstanding, it is fair to say, which appears to be not uncommon. Section 2 is concerned with contracts for the creation or sale of legal estates or interests in land, not with documents which actually create or transfer such estates or interests. So a contract to transfer a freehold or a lease in the future, a contract to grant a lease in the future, or a contract for a mortgage in the future, are all within the reach of the section, provided of course the ultimate subject matter is land. However, an actual transfer, conveyance or assignment, an actual lease, or an actual mortgage are not within the scope of section 2 at all.

I have two sets of terms and conditions - one for the mortgage agreement and another set for the mortgage deed.

The terms for the mortgage offer define an agreement for the precise terms to be used in the mortgage deed.

If the terms of the agreement are void due to failure to comply with LPMPA1989 section 2, what becomes of the terms of the deed (whose terms were assented to by contract)?

It has been observed that lender community is relying on earlier precedent (following the "mortgage deed is not a contract" defence) and suggest that neither mortgage charges nor deeds are subject to section 2 (a point that this thread agrees with) as they are actual disposition not contract for the creation of the disposition.

However I have yet to see a statement from a lender relating to the applicability of LPMPA1989 section 2 to the mortgage contract itself (the offer) that was used to define the terms and conditions for the presentation, terms and and execution of the deed.

A standard mortgage offer clearly takes on the form and function of a contract. LPMPA1989 section 2 is here: http://www.legislation.gov.uk/ukpga/1989/34/section/2. Section (3) states: "The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract".

Based on this information the questions posed here are:

1. Is a standard residential mortgage offer/contract/agreement void if it fails to meet LPMPA1989 section 2?
2. What is the legal status of a mortgage deed if the mortgage agreement is deemed void?

[Jabba the hut]

I am still looking to see if this situation has previously been decided in Court. I will come back to you on this as soon as I find anything

[UNRAM]

Jabba I thank you in advance for any time you can offer on this topic.

I have read the terms and conditions of the offer and it certainly appears to fulfil the form and function of a contract...

If so, and the contract concerns any interest or disposition of land, section 2 applies.

Question is:

what is the effect on a deed arising from a contract when the contract itself fails section 2?

The terms and conditions of the deed have clearly been made and assented under contract (and in my case sub terms and conditions for the deed have been defined)

- even though the contract has not been mutually assented in the correct form according to law.

I can see potential for ambiguity if a judge decides to uphold the lenders title by deed alone.

What actual contractual terms and conditions would be upheld sufficient to maintain the mortgage agreement through to its eventual disposal (either by redemption or repossession) if the agreement itself is void?

i.e. a judge may order a mortgagor to continue paying the mortgage to avoid lender repossession, but for how much, and under what terms?

How can either party rely on terms and conditions for a contract that is essentially void ab initio and no terms were legally agreed?

A judge can (and does) order that "the borrower must pay" but how much is due when there is no enforceable mortgage agreement?

[Jabba the hut]

I have copied this from the other thread, so that it remains with the appropriate topic of discussion

 

Jabba the hut said:

Answer: There is and has been

 

Modern Land Law

By Martin Dixon

 

About the Author:

Fellow of Queens'College, Cambridge.

Faculty of Law,Cambrdige University

Editorial panel:The Conveyancer and Property Lawyer

Visiting Professorof Law, City University, London

 

10.8.4 Mortgages by estoppel

 

As we have seen in Chapter 9, proprietary estoppel may operate to give a claimant an interest in land even though the claimant cannot produce the deed or written instrument that is normally required to establish a proprietary right.

Moreover, we also know from Jennings v Rice (2002) and cases before it, that the court has an equitable jurisdiction to grant the remedy that is necessary to remove the unconscionability that triggered estoppel –sometimes described as ‘the minimum equity to do justice between parties’.

There is no reason why this remedy should not be such so as to give the claimant an equitable mortgage over the defendant’s land, even despite the absence of formality.

This is unlikely to be the case where the defendant landowner has made some unspecific promise to the claimant, but what if the defendant has done some act that leads the claimant to believe they actually have a mortgage and the claimant acts on that belief ?

As we know from Taylor Fashions v Liverpool Victoria Trustees (1982), if one person promises an interest in land to another and that is relied upon to their detriment, equity will enforce the promise and can give effect to the claim of the promise.

So, if a lender has actually advanced money on the basis of a promise (either orally or represented by the deposit of the title deeds), it is possible that the mortgage will be enforced despite the absence of any formality.

The difficulty is, of course that to use estoppel in these circumstances appears to be side stepping the statutory imposed requirements of formality

– after all, the lender will have an action in the debt for recovery of the money and why should estoppel be used to create a proprietary claim simply because the parties failed to use the proper formalities?

The answer is that estoppel can operate in these circumstances not simply because formalities were not used, but because it would be unconscionable in the circumstances in the circumstances to deny the mortgage.

Thus, in Kinane v Alimany Mackie-Conteh (2005), the Court of Appeal accepted that the claimant had a mortgage by estoppel because he had lent money to the claimant on the faith of an assurance that a valid mortgage would be forthcoming.

When the mortgage did not materialise – the written agreement attempted by the parties did not comply with section 2 of the 1989 Act – estoppel stepped in.

In particular the Court of Appeal specifically decided that a failed contract could indeed form the basis of the assurance necessary to support estoppel.

Critically, this was not to be regarded as the avoidance of statutory formalities, because a failed contract could form the assurance necessary to generate an estoppel if there was unconscionability.

Thus, in the words of the Court the cause of the action in proprietary estoppel is thus not founded on the unenforceable agreement but on the defendant’s conduct which, when viewed in all relevant aspects, is unconscionable.

In this case then, a mortgage was generated by estoppel because of the borrower in leading the lender to believe that a valid mortgage did indeed exist.

Another example is provided by Halifax plc v Popeck (2008). In which Halifax’s charge appears to have arisen by estoppel because it lent money on the faith of an assurance by the borrowers that it would be granted a legal mortgage over the whole of the borrower’s land.

When it transpired that Halifax only had a registered legal charge over a narrow strip of land –because of fraud perpetrated by the borrowers

– it was granted an equitable mortgage over the entire property because of estoppel and in the result of this equitable mortgage prevailed over the claimants to the proceeds of the sale of the land.

[Jabba the hut]

This is a link to one of the cases referenced

 

Kinane v Mackie-Conteh [2005] EWCA Civ 45 (01 February 2005)

http://www.bailii.org/ew/cases/EWCA/Civ/2005/45.html

[Jabba the hut]

This is a link to the other case referenced

Halifax Plc & Anor v Curry Popeck (A Firm) & Anor [2008] EWHC 1692 (Ch) (18 June 2008)

http://www.bailii.org/ew/cases/EWHC/Ch/2008/1692.html

I have not had the chance to read fully the above two cases and have posted them for others to read and discuss.

I will keep looking to see what other information I can obtain.

[TimetogoRAM]

A judge's question will be - did your lender lend you the money to buy your house? Yes or no? Would you have been able to buy your home without your lender lending you this money? Yes or No?

Paying the lender 'something' may satisfy a judge that it is a borrowers intention to pay something towards an unsecured debt.

Does the borrower deserve compensation, restitution or quite simply nothing due to what has already been gained.

It has to be argued how much, however, because effectively the borrower already has their restitution in the present value of their house minus what has already been paid plus interest.

How this one could be worked out is an interesting one!

[UNRAM]

Jabba, I would certainly be interested to hear your thoughts and interpretation of the original statement in this thread within the context of the verdicts given above.

I think you are correctly stating the judges main line of questioning during a standard repossession hearing - but not necessarily here as we have yet to formulate a coherent submission.

I think it's too soon to make this assumption without further exploration...

[TimetogoRAM]

section 1 LPMPA 1989 -non execution of the deed

Section 2 LPMPA 1989 - contract/mortgage offer

 

Interesting because effectively Nram's defence is that section 2 does not apply to deeds. However what they have done is link the two together by not actually signing the mortgage offer contract and only requesting the borrower to sign the deed.

 

Lender - section. 2 does not apply to deeds. It is the contract created for the future disposition.

Borrower - ok so have you signed the mortgage offer then? Have I signed the mortgage offer?

Lender - yes you have signed the mortgage deed which incorporates the t&c's for the contract.

Borrower - I thought you said the deed does not apply to section. 2 (in other words the contract/offer)?

Lender - it doesn't!

Borrower - well can you show me where in the mortgage offer (in other words the contract or agreement) it is signed by the borrower or/and the lender?

Lender - the deed is signed by you with a charge by way of legal mortgage with full title guarantee.

Borrower - the deed is nothing to do with the contract/agreement - it is separate. Or are you now saying it isn't?

Lender - they are two separate contracts. There's the contact which satisfy section 2 and the deed which is a charge by way of legal mortgage with full title guarantee.

Borrower - ok well if they are separate then where's my signed mortgage agreement? I put it to you that section 2 (3) LPMPA 1989 The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.

Lender - the mortgage deed has been signed by you and executed by us when this was sent to the conveyancer to release the funds.

Borrower - Are you now saying that section. 2 does apply to the deed then? where's your signature on the deed? RRO 2005/s23 LRA 2002!!! Etc etc

 

 

Correct me if I'm wrong but just thought I'd put together a possible lender - borrower argument. Any assistance to correct the possible conversation would be appreciated as this is a good way of getting to grips with the possible arguments ahead of us!

[UNRAM]

To simplify your discussion a little it is fair to say there was a mortgage agreement made prior to charging the deed as evidenced by your mortgage offer.

There is no need for an arbitrary contract to be mutually assented by signatures - unless the contract it for the creation of an interest or disposition in land.

There is no possibility to confuse the agreement (for the creation of deed) and the deed itself.

This is further evidenced by two distinct sets of terms and conditions.

The only potential I see is to misguide the borrower in the hope he does not notice the omissions...

 

[applecart]

"Lender - the mortgage deed has been signed by you and executed by us when this was sent to the conveyancer to release the funds. "

If during any conversation a lender says they have 'executed' the deed......that would be untrue......not when the 'official copy' is sitting in your lap....clearly evidencing that the deed has not been executed by them.

It is however true, that mortgage deeds do include reference to the t's& c's as a means of 'incorporating' the terms of the mortgage offer into the deed.....

However....the issue for the lender is......neither the Deed nor the mortgage offer is executed by the lender.......

so this...........:

"Lender - they are two separate contracts.

There's the contact which satisfy section 2 and the deed which is a charge by way of legal mortgage with full title guarantee."

Is totally mythical.....

for the contract does not satisfy section 2 LPMPA 1989 ......and the deed does not satisfy section 52 (1) LPA 1925......

The contract is unenforceable.....the deed is void.......

Just my quick observations.......

Hi UNRAM

That's why I said the 'agreement' is un-enforceable.......it is because it relates to a land transaction.....remember the statute of Frauds......

Apple

[TimetogoRAM]

Get ya! Best to keep them completely separate to ensure we don't end up getting tied up in knots and falling into the old trap.. Just think the lender chooses when to link them together and when not to.

 

I understand why a lender would not sign/execute a deed for securitisation purposes. However why would a lender not sign or ask a borrower to sign the offer/agreement and risk this argument?

[UNRAM]

The whole topic is quite mind-bending.

[applecart]

It would seem the only purpose of the mortgage offer is to encourage you to sign the deed......

 

I.e you will re-call these lenders didn't care what your financial status actually was...they just wanted to give you the money regardless......they knew that once you signed that deed....they would be free to run off to securitise the 'mortgage'.......

 

These lenders were the ones that happily loaned to borrowers where the credit history was poor....non of which mattered to them at all.....they just hiked up the interest rate on the borrowing...attached it all to libor...which they rigged, as we know......just so long as you signed that deed.......they were happy to ignore the need to sign the offer.......in reliance that they would not be challenged at any time at all.....

 

oh well.....ke se rah...se rah..... (if that's how you spell it?) ......they should have signed the mortgage offer

 

Apple

[UNRAM]

...and to agree the terms and conditions of the deed 'under contract'.

How exactly does the lender raise the mortgage advance?

Are you suggesting they borrow it themselves?

At what point did they obtain the money to deposit into the transferors account?

Was it before or after I signed the deed?

Would they have borrowed the full amount i.e. contributed nothing from their own assets?

How does this typically work?

What do they then actually sell as security?

Is it a sub-charge?

I understand it at present as a "beneficial right"...

Whats the typical return on the sale of a mortgage?

I can only assume they can't sell it for 100% of its total value due to long term risk.

Whats a sub-charge worth on the market?

[TimetogoRAM]

Is it worth adding the point of this thread to the property chamber app at the moment? If so how should it be put?

[UNRAM]

I have submitted an application to the Property Chamber based on RRO and LRA2002 23 and a case has been opened based on this information.

I have already included a reference to this issue though I am happy to wait for the respondent's reply before adding any detail to my original application.

This also offers more time to explore relevant law and case history, and discuss the repercussions and possible lines of defence from the lender ahead of their response.

Some case law has already been posted to this thread that I have yet to digest so I personally have not reached any forgone conclusions yet...

[UNRAM]

I cant seem to PM docs else I would.

The exact wording is: "We are obliged to make further advances on the conditions agreed between you and us.

We apply to the Chief Land Registrar to enter a note to that affect."

i checked and no CH2 was registered.

I think an interesting point arises here because although there is an an alternative form, the obligation appears (to me) to change the nature of the deed from being unilateral (assuming the pre-condition that a deed is not a specialty) to bilateral....

[bhall]

Whilst last time I checked I do have a pm facility, I do not use it and would prefer not too. Documents can be posted in the open forum with all personal details hidden.

 

No one is interested in personal details just the wording of the documents.

 

You could scan (or even take a picture with your phone) the deed or any other document and use a program such as paint to draw a box over any personal details.

 

There is no genuine need in my view for pm's to be used to discuss matters as it renders the whole point of a public forum meaning less.

 

Have you had a further advance that has been secured by the deed ?

 

Is there any record of the obligation on your Title Deeds

Edited October 13, 2013 by bhall

[UNRAM]

To answer your questions:

1. no further advance.(01.05.2007)

2. Title register entry:

The proprietor of the Charge dated 20 March 2007 referred to above is under an obligation to make further advances. These advances will have priority to the extent afforded by section 49(3) Land Registration Act 2002.

I don't want to lose sight of the fact that the deed you kindly sent me is a bilateral document.

Why would Northern Rock have omitted this?

[bhall]

Just so there is no misunderstanding by readers, I have not sent UNRAM anything, I have posted a deed on the forum.

If you have not had a further advance, this might be a mute point.

[bhall]

The problem you have is that the mortgage deed has been checked and approved by the Land Registry

 

Practice Guide 30 (7) states what a mortgage deed must contain to be approved by HMLR

 

All that has occurred is that a notice has been entered onto your Title Deeds that the lender is obligated to provide a further advance, If you were to convince the Property Chamber this is a mistake, the outcome would be the removal of this notice from your title deeds.

 

I doubt very much that it would render the deed void.

 

As you don't have a further advance, it isn't all that important.

[UNRAM]

The other issue here, and the main topic of this thread, relates to the unsigned mortgage offer.

This is indicated by case law to be a "contract for the future disposition".

The more I consider it the more I am convinced that Northern Rock should have signed it for it to be compliant with LPMPA1989 section 2.

My question is:

what affect does this have on the rest of the conveyance if there are no contractual obligations to fulfill. i.e. no loan amount agreed under contract, no repayments agreed under contract, no deed terms and conditions (as sub-terms) agreed under contract.

I hope my question is clear:

how can a judge enforce an amount for payment if there are no contractual duties?

LPMPA1989 (2)(3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.

In the event that there is a unilateral deed but no mortgage contract (i.e. only an agreement not meeting the requirements of law but clearly intended to act as a contractual document) creating a binding duty to repay the loan,

how can anyone make a decision as to how much is to be repaid. I think any complete answer would need to take into account the the repeal of LPA1925 section 40...

Thanks for taking the time to look into this.

One last point however is that the lender hasn't assented to it's obligation.

As stated Northern Rock didn't complete a CH2.

In that instance how could they remove something that is essentially a promise.

Wouldn't removal be to the borrowers detriment?

After all they thought they had been promised an advance...

Edited October 13, 2013 by UNRAM

[bhall]

I also feel that estoppel would prevent the grantor from claiming that they did not grant the charge as security for a loan.

Something that has been mentioned recently about a deed is equity. If it does not operate at law, it can still operate in equity.

That should not overlooked or dismissed as easily or as quickly as it has been.

[TimetogoRAM]

Hi mate did you get your application into the property chamber?

Sounds like a real battle on your hands.