Property Mortgages

Overview I

Strictly speaking, a mortgage relates to unregistered title. Security over registered title and all post-2009 Act real property security must be by way of a “legal charge” over the borrower’s interest in the property concerned. However, the expression “mortgage” is more commonly used and it is used interchangeably and predominantly below, for convenience.

A mortgage or charge creates property rights over the secured asset.  The rules in relation to the creation and mortgages and charges and the relative priorities between different mortgages and charges on the same asset are determined by property law rules.

Unregistered” title involves ownership being established by deeds which prove a chain of previous purchases and transfers, with the last transfer deed to the present owner. Ownership is proved under conveyancing practice by the production of a chain of deeds proving ownership since a sale of the property for full value, at least 15 years beforehand.

Overview II

Security over real property post 1st December 2009, may be created by way of charge only.  A charge creates proprietary rights which hold good against the world in the same way as a mortgage.  It is an interest in the property.  However, a charge does not give the same inherent ownership rights that a mortgage gives.  A charge gives certain statutory rights and remedies to its holder.  The legislation (The Registration of Titles Act, 1964 and The Land Law and Conveyancing Law Reform Act, 2009) grants the charge holder most of the rights and remedies of a mortgagee by deed.

In the case of a charge, the borrower may use the asset unless and until an enforcement event specified in the charging document occurs.  Once this happens, the charge/ lender may require the asset to be sold, may take possession, appoint a receiver, or exercise such other powers as are provided. The charge gives the lender a claim over the proceeds of the sale.  The chargee may take not simply take and keep the security in satisfaction of the loan.

Registry of Deeds I

Prior to 1st December 2009, security over unregistered title land was created by a deed which transferred title or granted a long lease to the mortgagee, subject to the right of the mortgagor to have ownership transferred back upon repayment of the secured monies. The term “unregistered” title is misleading to some extent, as it is necessary to register mortgages and other deeds in the Registry of Deeds in order to secure their priority over other deeds. The Registry of Deeds in now part of the Property Registration Authority.

Registration of a deed (including a mortgage or charge) is not necessary to ensure its validity and effect. However, the failure to register runs the risk that a person who transferred or mortgaged the property under the deed may later transfer, mortgage or create some right by a later deed or mortgage, inconsistent with the transfer or mortgage. This later transfer or mortgage may obtain priority over the earlier transfer or mortgage by being registered first in the Registry of Deeds.

Registry of Deeds II

Although both transfers and mortgages are valid and binding on the person who created them once executed, where there is more than one inconsistent deed or mortgage, that which is first registered is valid against the others. In a contest for entitlement to the proceeds of the sale of security, the rights of the mortgagee who is first registered are likely to prevail (in the absence of actual notice or fraud). The mortgagee may have personal rights to enforce against the person who wrongfully granted the two mortgages. However, the security may be lost to the mortgagee whose deed is first registered.

Registration in the Registry of Deeds is a critical part of the creation of security over unregistered title. The mortgage is immediately valid on signature and can be enforced in court if there is a breach.  However, the mortgagee who fails to register runs the risk that it will rank behind mortgages, transfers, leases, easements and other rights which are created later, but which are registered first.

Rights later granted by the mortgagee might completely or partly undermine the mortgage if they are registered before the mortgage. These later rights need not necessarily be created fraudulently. An easement (e.g. a right of way) or a lease might be created by the owner after the mortgage is granted. If the later mortgage is registered first, it would have priority over the earlier unregistered mortgage, easement or lease. It would be binding on the owner, but if the first registered mortgage was enforced, the later registered (or unregistered) mortgage would fall away, and its entitlement would be to the surplus proceeds of the sale, if any.

Registered Title I

Registered title refers to title (or ownership) which is registered in the Land Registry. Registered title is the more modern system of proving ownership of real property. Eventually, it is expected that registered title will entirely replace unregistered title.

Compulsory registration has been extended over time, particularly in the last ten years. Where registration is compulsory, then on the next sale or transfer of the property, an application must be made to register the title in the Land Registry.  From then on, the title must be dealt with through the Land Registry only.

Three counties have been subject to compulsory registration since 1970. As a result of a series of designations, it is now the case that all counties, (Dublin and Cork since June 2011), are subject to compulsory registration. Most counties have only been designated for compulsory registration in the last ten years. Title to land will only become registerable when it is transferred. Therefore, unregistered title will remain for a considerable period of time.

Registered Title II

The Land Registry file or folio contains three parts. The first part contains a description of the land and sometimes states the land area. The first part is cross-referenced to an Ordnance Survey map of the property concerned.  The map is an extract from the official Land Registry map.

The second part sets out the owner or owners of the property. This is the legal owner, who may be a trustee. The information may be out of date because the registered owner is dead or has lost the title to a squatter. There are various conveyancing practices to deal with these limitations does not cause difficulties.

The third part sets out rights affecting the property. This may include leases, easements (such as rights of way in favour of adjoining properties), and most importantly from the lender’s perspective, registered charges. A registered charge is the equivalent of a mortgage in the case of unregistered title. Strictly speaking, security can only be created in the case of registered land, by a legal charge.

Registered Charges

A charge over registered land is for most practical purposes, the same in content and effect as a mortgage. The mortgagor is a “chargor, ” and the mortgagee is a “chargee” or charge holder. However, for convenience the words “mortgage”, “mortgagor” and “mortgagee” in these notes for both registered and unregistered title as they are traditional descriptions and are the ones most commonly used.

Strictly speaking, a charge does not involve the transfer of ownership, in the same way as a mortgage of unregistered title. The charge holder is deemed to have all the legal rights of a mortgagee.   However, some mortgagee rights depend on ownership, such as the inherent right to take possession. A charge holder does not have the same automatic right to possession as a mortgagee. However, the terms and conditions of a charge of registered land may grant a right of possession to the mortgagee, by the terms of the charge deed.

2009 Act Reforms

Irish property and mortgage law remained virtually unchanged for nearly 130 years until the passing of the Land and Conveyancing Law Reform Act 2009. Most of the legislation commenced on 1st December 2009.

The principal changes apply only to instruments executed after the Act came into force. The only method of creating security over real property is by way of a legal charge, as had been the case with registered title. The holder of a charge (the mortgagee) has the same powers and rights as a mortgage by deed.

The Act modernises and sets out in detail, the rights and obligations of mortgagors and mortgagees. The same law applies to legal charges of unregistered and registered title property.

Equitable Mortgages

An agreement to create a mortgage, such as a solicitor’s undertaking or a loan agreement may create an equitable mortgage. It is necessary that the agreement is sufficiently clear and unconditional so that it would be enforced by a court. An equitable mortgage creates a security which is weaker than a mortgage or charge created by adherence to the required formalities.

It will usually require court action to enforce. It may be vulnerable to a later legal mortgagee / chargee, who is unaware of it and who registers and / or completes the necessary formalities first.

A document agreeing to create a charge or mortgage over land (even an equitable mortgage) must be proved in writing signed by the person against whom it is to be enforced, or someone authorised to sign on his behalf. A verbal agreement for security over land and buildings is unenforceable. A written agreement such as a signed loan agreement or solicitor’s undertaking will generally be enforceable.

Mortgage by Deposit of Deeds

It is possible to create a mortgage over land by deposit of the title deeds with a lender. This is an exception to the requirement for a note in writing signed by the borrowers. It is necessary that all the documents required for dealing with the land are deposited. This would be all, or at least, the key title deeds. Neither a signed document nor registration in the Registry of Deeds is required. A mortgagee who does not obtain the key title deeds is deemed to be aware that there may be an equitable deposit.

The mere leaving of the deeds with the lender does not necessarily create an equitable mortgage by deposit. The deeds may be lodged for safe keeping. There must be an intention to create an equitable mortgage.

Sometimes a memorandum is created when deeds are lodged. There are risks with this. It might be decided that the document is an agreement to create a mortgage which has not been completed. This means that the document is registerable and therefore must be registered in order to be protected. It is possible to register the note accompanying an equitable deposit in the Registry of Deeds.

In Land Registry cases, a mortgage by deposit could formerly be created by depositing the Land Certificate. The Land Certificate was an official document issued by the Land Registry for a particular folio. The official copy folio stated whether a Land Certificate has issued. It was not possible to deal with land without production of the Land Certificate, where it has issued.

Land Certificates were withdrawn by the Land Registry in the period prior to 2010. This was part of the move to “dematerialise” the Land Registry for an eventual complete move to an internet-based registration system. Land Certificates are no longer issued. After 1st January 2010, a Land Certificate is no longer be required to be produced to the Land Registry on transfers, mortgages and other dealings. Therefore, mortgages by deposit of the Land Certificate are no longer effective. It was necessary for such mortgagees to register their charge by 2010 in order to protect them.

Security Creation Procedure

In the case of owner-occupier properties, most lenders act on the basis of an undertaking and certificate from the borrower’s solicitor in the standard Law Society form. The use of undertakings in other cases has been restricted by Solicitors Act Regulations.  In those cases, the lender retains its own solicitor in order to ensure the proper execution of the mortgage deed and the registration of the bank as owner of the mortgage/charge.  The lender may investigate the borrower’s ownership of the land and other legal issues, or it may require that its own form of  certificate of title is given by the borrower’s solicitor.

Commercial certificates of title consist of a series of confirmations to the lender in relation to a range of legal issues affecting the property, ranging from ownership, legal compliance issues, and issues which are relevant to the saleability of the property.

If the solicitor is not in a position to give all the confirmations contained or implied in the certificate of title, then he is obliged to disclose any defects or shortfalls and obtain the bank’s approval in advance. If the solicitor does not comply with the obligations in the Certificate or fails to make required disclosures, he may be liable to the bank for breach of duty and negligence, in the event that the bank suffers loss as a result. Where an undertaking is permissible, it may be enforced by direct High Court action.

Personal Liability on Mortgage Debt

An individual borrower is personally liable for the loan unless the lender specifically agrees that recourse is limited in some way. The loan is a personal debt which may be sued for in debt collection court proceedings. There are summary court procedures in relation to fixed sum debts. Where a court order for the debt is made, it can be enforced against the borrower and his assets in a number of ways.

Most bank loans may be enforced under the debt collection court procedures in the District, Circuit or High Court, depending on the level of the debt. The loan offer may state where legal proceedings may or must take place. Generally, under European Union rules, a consumer must be sued in his home state. In the case of an Irish resident borrower, the debt will generally be enforceable in the Irish Courts.

Generally, there will be little defence to a claim on a debt against a borrower. A court order can usually be obtained declaring liability for the debt, without the need for a court hearing, if the borrower does not defend the proceedings. This will usually be the case unless there is some real dispute about the debt.

References and Sources

Irish Texts

Breslin Banking law + Supplement     3rd Ed  2013

Mortgages Law & Practice     Maddox 2nd Ed            2017

NAMA Act 2009: A Reference Guide Raghallaigh, Kennedy, Whelan

Money Laundering & Anti-Terrorist Financing Act 2010

Financial & Emergency Provision Legislation Annotated      2011

Shelley & McGrath     National Asset Management Agency Act Annotated 2011

Dodd & Carroll            Law Relating to NAMA 2012  0

Ashe & Reid    Anti-Money Laundering: Risks, Governance & Compliance             2013

Johnston & Ors           Arthur Cox Banking Law Handbook               2007

Dr Mary Donnelly  The Law of Credit and Security, 2nd Ed, 2015

UK Texts

A Hudson The Law of Finance 2nd Ed (Sweet and Maxwell 2013)

Veil (Ed) European capital markets law (Hart Publishing 2013)

IG MacNeil An Introduction to the Law on Financial Investment 2nd Ed ( Hart Publishing 2012)

E Ferran Principles of Corporate Finance 2nd Ed ( OUP 2014)

Gullifer (ed) Goode and Gullifer on legal problems of credit and security (6th edn Sweet and Maxwell London 2017).

MA Clarke et al (eds) Commercial Law: Text, Cases and Materials (5th edn OUP Oxford 2017)

McKendrick (ed) Goode on commercial law (5th edn Penguin London 2017)

G McCormack Secured credit under English and American law (CUP Cambridge 2004)

L Gullifer and J Payne Corporate Finance (2nd edn Hart Oxford 2015)

D Sheehan The Principles of Personal Property Law (2nd edn Hart Oxford 2017)

Ross Cranston, Emilios Avgouleas, Kristin van Zwieten, Christopher Hare, and Theodor van Sante Principles of Banking Law 3rd Ed 2018

E.P. Ellinger, E. Lomnicka, and C. Hare Ellinger’s Modern Banking Law 5th Ed 2011

Andrew Haynes The Law Relating to International Banking  Bloomsbury Professional 2009

Charles Proctor Mann on the Legal Aspect of Money 7th Ed 2012

Charles Proctor The Law and Practice of International Banking 2nd Ed  2015

Sheelagh McCracken The Banker’s Remedy of Set-Off   2010 Bloomsbury Professional

Louise Gullifer, Jennifer Payne Banking & Financial Law 2018

Hubert Picarda QC The Law Relating to Receivers, Managers and Administrators 4th Ed  2006 5th Ed 2019

Lightman & Moss on the Law of Administrators and Receivers of Companies 6th Ed  Sweet & Maxwell 2017

Timothy N Parsons  Lingard’s Bank Security Documents 6th Ed 2015