Land Law - Mortgages (Part 2)

Mortgagees have four main forms of protection:

(1) Pre-existing equitable interests
Overriding equitable interests was a major concern for mortgagees after the case of Williams & Glyn's Bank v Boland [1981] but since then there has been a significant retreat from this principle demonstrated best in the case of Abbey National Building Society v Cann [1991]. Now there is overriding status only where the equitable interest subsisted at the time of the disposition and occupation was “obvious on a reasonably careful inspection of the land at the time of the disposition” as per Schedule 3 Paragraph 2 of the Land Registration Act 2002.
There are even fewer problems where loan money is advanced to more than one trustee because in such circumstances all beneficial interests are neutralised as per City of London Building Society v Flegg [1988].
Where there is fraud involved the joint tenancy will be severed and the bank will take on the fraudster's interest; First National Securities Ltd v Hegerty [1985]. It is likely at this point that the bank will try to force a sale of the property so they can recover at least some of the money lost.

(2) Subrogation
This is simply where another person agrees to pay the mortgage off to the bank in order to acquire a charge over the relevant property. This could also be another bank.

(3) Immunity form leases
While the mortgagee is bound by any leases created prior to the mortgage (Neale v Mackenzie [1836]) they are generally not bound by any leases created after the mortgage came into existence (Rogers v Humphreys [1835]). In reality the right to create a lease is often excluded from the mortgage contract anyway.

(4) Right to immediate possession
This is a particularly important right and indeed the mortgagee “may go into possession before the ink is dry on the mortgage unless there is something in the contract whereby he has contracted himself out of that right” as per Harman J in Four Maids v Dudley Marshall [1957].
In reality the mortgage agreement will exclude the right to possession until there is some default by the mortgagor as per Birmingham Citizens Permanent Building Society v Caunt [1962].
Nevertheless the mortgagee may often be reluctant to go into possession as they have to:
account to the mortgagor for rents and profits (Lord Trimleston v Hamill [1810])
Not derive any profits themselves (Comyns v Comyns [1871])
Take reasonable care of the property (Nicholls VC in Palk v Mortgage Services Funding Plc [1993])
Let the property at market rent (Nicholls VC in Palk v Mortgage Services Funding Plc [1993])
Account for income that would have been received if the premises would have been managed with due diligence (White v City of London Brewery Co [1889])
Nevertheless they can appoint a receiver to this end (s. 101(1)(iii) Law of Property Act 1925)
Finally it is important to note that they cannot use or threaten violence to gain entry if there is some present opposed to that entry (s. 6(1) Criminal Law Act 1977)