MLL327 Study Guide - Final Guide: Pignus, Secured Loan, Financial Institution
Property Law Topic Eleven
• appreciate the security nature of the mortgage
• Is a form of security interest which confers upon a lender an enforceable proprietary interest until the
primary loan contract is discharged
• Most common form of security interest in the case of land transactions
• Purpose of mortgage is to ensure that the loan money lent pursuant to a loan contract are protected
by conferring security upon the lender
SECURED LOAN
• Loan from a bank or financial institution
• The borrower (mortgagor) enters into a contract with lender (mortgagee) to obtain a loan
• Loan agreement is just a contract, protected by contractual remedies
• Secured loan is a loan secured by property which belongs to the borrower
• Loan is secured by the grat of a otgage the otgago to the otgagee oe otgagos
property
• Mortgage is an in rem alienable interest
• Motgagos property will be security for loan in case of breach of contract
• If the borrower defaults, rather than just contractual remedies, the lender can take action against
specific property
• Upon default, the lender may (a) sell secured property to recoup amount outstanding and costs or (b)
take over property in exchange for extinguishment of debt of borrower
• Mortgage the most common form of a secured loan
• understand the type of interests that security interests can create
TYPES OF MORTGAGES
• Nature and scope of mortgage depends on:
• Source of law that validates mortgage: common law, equity or statute
• Nature of proprietary right (Roman classification):
– Fiducia (transfer of ownership to lender for duration of the loan): old title mortgage
– Pignus (transfer of possession of property to lender for duration of loan, but not legal
ownership): lien
– Hypotheca (creation of a charge in favour of lender to take action against property if
there is default): Torrens title mortgage
• Two primary forms of mortgages of land:
• Mortgage involving the actual conveyance of legal estate to mortgagee (old title mortgage)
• Mortgage involving the acquisition of an enforceable charge against the property (Torrens
title mortgage)
• Charge is in an interest that crystallises in possession when the terms of the loan contract
have been breached, entitling the lender to possession and title of secured property for
purposes of extinguishing the debt
POSSESSORY SECURITIES
• Commonly associated with chattels
• Commonly known as a lien
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• Only exist where lender has actual possession or right to immediate possession of the property
• Right to retain possession of property until debt is paid
• No right to exercise power of sale
• May be created expressly at law or be enforced in equity
• Usually chattels e.g. ehais lie oe a, soliitos lie oe douets
• Vendor’s equitable lien over real property – right to keep possession until full purchase price paid
• Purchasers equitable lien over deposit paid until conveyance of estate takes place
OLD TITLE MORTGAGE
• Involves a transfer of legal ownership in the secured land to the mortgagee coupled with the
contractual obligation for the mortgagee to re-transfer title upon the debt being discharged
• Mortgagee has full legal title but not entitled to treat property as their own: not as absolute as full
ownership; can only exercise ownership rights on default in the loan contract
• Mortgagee must act in accordance with interests of the mortgagor
• This applies even when the mortgagor is in default and the mortgagee takes action against the
property, eg power of sale
• Problems with the common law – mortgagee had considerable power oe otgagos lad
• If mortgagor failed to fulfil contract exactly, the mortgagee was entitled to full ownership of the
property, even if the remaining debt was very small or debt had eventually been paid
• Only remedy available to mortgagor under common law on breach of contract by mortgagee was
damages
• Court of equity allowed mortgagor to redeem property if debt was repaid, even if after contract date
• Equity focuses on the security character of the mortgage
• Mortgagee entitled to protection of their investment not to unfair windfalls
• Equity of redemption led to mortgagees having no remedy against the property.
• Equity developed right of foreclosure for mortgagees
• Mortgagee can seek an order of foreclosure (of the equity of redemption) which extinguishes the
otgagos ight of edeptio i the popet
• Legal estate is conferred as security for duration of mortgage; transfer by deed of conveyance
• Mortgagee retains ownership of mortgaged land until debt is fully discharged and contractual
obligations are satisfied
• Mortgagee as legal owner has right to possess; right to possession is transferred back to mortgagor
pursuant to a lease (attornment clause)
• Mortgagee has contractual duty to re-transfer the property upon payment of debt
• Mortgagor acquires right to reclaim property once the debt is repaid and obligations satisfied
• Equity supplements the contractual right of re-conveyance
• Old title mortgages not common because most land comes under Torrens system or has been
converted to Torrens title land
• be aware of the nature and enforceability of the equity of redemption
REDEMPTION
• Legal estate is conferred as security for duration of mortgage; transfer by deed of conveyance
• Mortgagee retains ownership of mortgaged land until debt is fully discharged and contractual
obligations are satisfied
• Mortgagee as legal owner has right to possess; right to possession is transferred back to mortgagor
pursuant to a lease (attornment clause)
• Mortgagee has contractual duty to re-transfer the property upon payment of debt
• Mortgagor acquires right to reclaim property once the debt is repaid and obligations satisfied
• Equity supplements the contractual right of re-conveyance
• Old title mortgages not common because most land comes under Torrens system or has been
converted to Torrens title land
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Property law topic eleven appreciate the security nature of the mortgage. Is a form of security interest which confers upon a lender an enforceable proprietary interest until the primary loan contract is discharged: most common form of security interest in the case of land transactions. Purpose of mortgage is to ensure that the loan money lent pursuant to a loan contract are protected by conferring security upon the lender. The borrower (mortgagor) enters into a contract with lender (mortgagee) to obtain a loan. Loan agreement is just a contract, protected by contractual remedies. Secured loan is a loan secured by property which belongs to the borrower. Loan is secured by the gra(cid:374)t of a (cid:373)o(cid:396)tgage (cid:271)(cid:455) the (cid:373)o(cid:396)tgago(cid:396) to the (cid:373)o(cid:396)tgagee o(cid:448)e(cid:396) (cid:373)o(cid:396)tgago(cid:396)(cid:859)s property: mortgage is an in rem alienable interest, mo(cid:396)tgago(cid:396)(cid:859)s property will be security for loan in case of breach of contract. Types of mortgages: nature and scope of mortgage depends on: