Mortgages and Charges

Mortgages, Charges
and other types of security

What is a mortgage?

"No-one, I am sure, ever by the light of nature understood an English mortgage of real estate"
Samuel v Jarrah Timber and Wood Paving Corpn
[1904] AC 323 at 326 per Lord MacNaghten  

Mortgage

A dead man's pledge
" [I]f he doth not pay, then the Land which is put in pledge upon condition for the payment of the money, is taken from him for ever, and so dead to him upon condition, &c. And if he doth pay the money, then the pledge is dead as to the Tenant"
Coke, Edward, Commentaries on the Laws of England   
 

Mortgage


In common usage, a mortgage is simply a form of security, usually over real property, for the repayment of a loan or other indebtedness

Mortgages and Charges
What's the difference?

There is no real difference anymore, and these days lawyers tend to use the terms interchangeably. Most are legal mortgages or legal charges, which means they are secured on the legal estate. Rather confusingly, the usual way of achieving this is by a charge by deed expressed to be by way of legal mortgage and if, as is commonly the case, it is secured on registered land, it is called a registered charge. 

In practice, mortgage deeds are frequently headed 'Legal Mortgage' or 'Legal Charge' and although their contents may vary, they usually take effect in the same way.

It is possible to have an equitable mortgage or equitable charge, which can arise in a number of different ways,  for example by an enforceable agreement for a legal mortgage or charge, a form of mortgage or charge which does not take effect in law, or by a mortgage or charge over an equitable interest only.

Mortgages and charges should be distinguished from other similar forms of security such as liens, which give a right to retain possession of property until the debt is paid, or pledges, which involve the delivery up of possession of property pending repayment of the loan. 

What's a charging order?

A charging order is another type of security which is created by a court order and takes effect as an equitable charge. Where for example, A sues B and obtains a money judgment against B, A can then enforce the judgment by applying to court for a charging order over B's land.

The procedure is set out in Part 73 of the Civil Procedure Rules and the Practice Direction to Part 73.

An application for a charging order is dealt with in two stages: Stage 1 is to obtain an "interim charging order".  Stage 2 is to obtain a "final charging order". Once a final charging order has been made, it may be enforced by an application for an order for sale under Part 73.10C of the Civil Procedure Rules, or by the appointment of a receiver.

What's a debenture?

A debenture is a type of security given by a company over a range of assets, including real property but also such things as the present and future value of the stock in trade, book debts and goodwill of the company. 

There is nothing to stop the company from mortgaging its real property in the normal way, but in practice lenders usually require the flexibility of securing as much value as possible. 


Although it is not possible to obtain a legal charge over unspecified, fluctuating or future property of the company, it is possible to obtain an equitable charge which may be either fixed or floating.

A typical mortgage debenture may thus comprise a legal charge over specified real property, a fixed equitable charge over certain assets and a floating charge over other assets.       
Share by: