Mortgages, Charges and Lender Requirements
This domain tests how a mortgage or charge is created, protected and released, and how the lender's instructions shape the conveyancing timetable.
Creation and priority
- A legal mortgage of registered land takes effect as a registered charge and must be completed by registration (s.27(2)(f) LRA 2002).
- For unregistered land, a charge by deed by way of legal mortgage (s.87 LPA 1925) is protected as a Class C(i) puisne mortgage.
- Registered charges rank in order of registration, not creation; an unregistered charge ranks behind a registered disposition for value.
Lender requirements
- The mortgage offer and part 2 requirements govern: title quality (absolute or good leasehold), restrictions requiring consent, adequate lease term, and buildings insurance.
- The retainer includes reporting on title and certifying at completion; the certificate of title is a representation to the lender.
- Prior charges must be redeemed and discharged at completion using DS1 for a whole charge, DS3 for part.
- Lenders commonly require notice of the transfer and of the new charge, and a deed of postponement where a family charge ranks ahead.
Acting for lender and borrower
Conflict can arise where the lender requires joint tenants but the borrowers want a tenancy in common, or where the property also secures a third party's debt. Disclose, obtain informed consent, or decline.
Remedies
On default the lender may sue on the covenant, take possession (with a court order for residential property), appoint a receiver, or sell under s.101 LPA 1925 once the power has arisen and become exercisable after notice under s.103.
Worked example
A buyer's solicitor searches the register and finds the seller's charge and a restriction in favour of a relative who lent the deposit. Completion needs a DS1 from the seller's lender and either the relative's written consent or evidence the loan is repaid; otherwise funds cannot safely be released and the buyer's own lender will not complete.
Traps
- Assuming a charge is effective before it is registered.
- Failing to check part 2 of the offer before exchange.
- Acting for lender and borrower where an unrepresented partner may be under influence, without Etridge-compliant independent advice.