legal mortgage

Mortgages are used to grant a secured interest in property for a loan of money. The mortgage is discharged upon repayment of the loan. The mortgagor offers the security; the mortgagee is the person taking the security interest.

Types of Legal Mortgages

Mortgages include charges and liens over a property for securing money or money's worth. A legal mortgage conveys the legal estate in property to the mortgagee (who is the lender in the transaction).
In the UK, there are two types of legal mortgages:

1. leases granted for a specified number of years; and
2. deeds which are stated to be charges by way of legal mortgage.

The equity of redemption is the right that entitles the mortgagor to have the property is re-conveyed to him after repayment of the sums loaned.

All other types of mortgage are equitable mortgages. In equitable mortgages, the legal title is not conveyed to the mortgagee. The lender obtains an equitable interest in the property mortgaged.

Mortgages over registered land are registered with Companies House, and recorded in the Register of Charges which is required to be maintained by the company. The first mortgagee usually takes possession of the title deeds, because it becomes the owner of the property when a legal mortgage is granted. Further mortgages, subsequent to the first, may be taken out over property.

Unless otherwise provided for in the mortgage document, and subject to rights implied into the mortgage instrument, the mortgagee retains the right to enter possession of the property at any time, whether or not a default has taken place.

Default on a Legal Mortgage

Where the mortgagor defaults on repayments, the mortgagee has the right to sell the mortgaged property (power of sale), which usually takes place after taking possession (foreclosure). If a surplus remains after sale of the property, the mortgagor is entitled to be paid the surplus.

Property available to be Mortgaged

Mortgages may be granted over a wide range of property, and is not limited to real property. In recent years security interests over copyright works, registered patents, design rights and trade marks have become valuable assets of a business and offered as a security interest for sums loaned. Accordingly, these intellectual property assets are able to be offered and made security for financial transactions.