Legal
Mortgage
co.uk

Chess Pieces
wig and book pic
Changes
Archive

Mortgages and Charges

WHAT'S THE DIFFERENCE?

These days most lawyers use the terms "mortgage" and "charge" interchangeably - usually to describe a loan or other indebtedness secured on land. Historically however, there was a fundamental difference. A mortgage involved a conveyance of land with what is known as a right of redemption - the effect of which was that upon full payment of the loan, the conveyance would become void or the land would be reconveyed. A charge on the other hand conveyed nothing but simply gave the chargee certain remedies by way of enforcement in the event of non-payment.

Mortgages and charges should also 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.

In practice, most mortgage lenders rely upon the security of a mortgage or charge which is registered against the title to the secured property.

ARE THERE DIFFERENT TYPES OF MORTGAGES AND CHARGES?

Yes, although in practice, the principal method of securing a loan of money over land is by what is called a charge by deed expressed to be by way of legal mortgage (indeed after the Land Registration Act 2002 came into force on 12th October 2003, this is the only method of creating a mortgage over registered land). Somewhat confusingly, this is called a "Legal Charge". It can be used to charge both freehold and leasehold property. In the case of freeholds, the effect of a legal charge is to give the lender the same protection, powers and remedies as if he had a term of 3000 years. In the case of leaseholds, the charge gave the mortgagee the same rights and remedies as if he had a sub-term one day shorter than the term vested in the mortgagor.

A legal charge is charged on the legal estate - that is the whole of the property, and will need to be entered into by the legal owners. It is possible however for one of two or more co-owners to charge what is called their equitable (or beneficial) interest. This is an equitable mortgage - a mortgage of an equitable interest.

Technically, a contract for a mortgage (which complies with the requirements of s 2 Law of Property (Miscellaneous Provisions) Act 1989) creates an equitable right to call for a legal mortgage and is thus deemed to be an equitable mortgage.

Mortgage lenders prefer the security of a legal charge because it gives them a right to possession and sale of the whole property. An equitable mortgage merely gives a remedy - the right to apply to the court for sale of the property in order to realise the borrower's equitable interest.

WHAT ARE CHARGING ORDERS?

Charging Orders are another type of security over land, which are created by a court order. Where for example, A sues B and obtains a money judgment against B, A can then enforce the judgment by applying to the 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 73.10 of the Civil Procedure Rules, or by the appointment of a receiver.

For further information about charging orders, follow the link to CPR 73 Charging Orders