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Who Owns Mortgaged Property?

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I saw a dispute on one thread about ownership of mortgaged property. Some people think the mortgagee (lender) is the owner, others the mortgagor (borrower). And people get their knickers in a twist about who holds the deeds.

In a classic mortgage, the mortgagor surrenders ownership to the mortgagee but retains the right to redeem the mortgage by an appointed date. Because time isn't of the essence of the contract, equitable rules allowed the mortgagor to redeem even after the date had passed - this is the equity of redemption (which is what we're talking about when we say a property has equity).

All of this changed in 1925 with a wave of the magic wand: statute came up with the legal fiction that a mortgage purporting to convey the fee simple/leasehold of a property actually created a term of years instead. So the mortgagor retains ownership.

You can read all about it here, sections 85 & 86:

http://www.opsi.gov.uk/RevisedStatutes/Acts/ukpga/1925/cukpga_19250020_en_7

Have fun.

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The issue is one of semantics. The borrower owns the property but hasn't paid for it. "Title" has not passed until the (secured) loan is paid. Those halfwits with IO mortgages and negative equity will find out they "own" the property soon enough :D Flats are more complex. You own the right to "rent" it. The freeholder owns the land. I often wonder what would happen if you didn't pay the rent - would they ask you to take you flat and park it somewhere else? Like a static caravan? Not sure even solicitors understand that one (or most of them anyway). English law is weird.

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The issue is one of semantics. The borrower owns the property but hasn't paid for it. "Title" has not passed until the (secured) loan is paid. Those halfwits with IO mortgages and negative equity will find out they "own" the property soon enough :D Flats are more complex. You own the right to "rent" it. The freeholder owns the land. I often wonder what would happen if you didn't pay the rent - would they ask you to take you flat and park it somewhere else? Like a static caravan? Not sure even solicitors understand that one (or most of them anyway). English law is weird.

Leasehold flats are a nightmare. Many lenders won't touch it.

But this isn't semantics - it is de law!

Edited by okaycuckoo

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They will, but most want 60 to 65 years or more remaining of the lease (or 40 after the end of any mortgage if it's for < 25 yrs) . There are new laws recently granting all leaseholders the right to extend it, and go to arbitration if necessary. There must be a certain no of years to run though, 20 I think.

You don't pay for the right to rent, that's paying twice. You pay a token ground rent, £50 ish a year for the right to live there. If you have no mortgage, that's it, apart from the service charges, which is where many L/L make their real money.

Edited by deflation

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They will, but most want 60 to 65 years or more remaining of the lease (or 40 after the end of any mortgage if it's for < 25 yrs) . There are new laws recently granting all leaseholders the right to extend it, and go to arbitration if necessary. There must be a certain no of years to run though, 20 I think.

You don't pay for the right to rent, that's paying twice. You pay a token ground rent, £50 ish a year for the right to live there. If you have no mortgage, that's it, apart from the service charges, which is where many L/L make their real money.

Correct. And if I were able to give one fair piece of honest advice to each and every person "out there" it would be ..."never, never, never buy a Leashold property - no exceptions if you are a private individual".

It is the biggest con of all time.

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.....

You don't pay for the right to rent, that's paying twice. You pay a token ground rent, £50 ish a year for the right to live there....

What happens if you don't pay though? That's the bit I never understood and no-one has ever given me a decent answer. (I sold my London flat long ago - I agree leasehold is a 'mare).

A shop, for example, has a lease and an annual rent. Don't pay the rent - lose the lease. We are all agreed the 50 quid or whatever is enough that this issue is probably academic not real, but my view (is it right or not?) is leasehold is a form of secured rental. Well that's how I look at it. I've had a good few disagreements with people over the years :) The issue being whether to buy the freehold or not. As I understand it all "tenants" can now buy the freehold.

Fascinating bit of arcane UK law.

Anyone that can post up the definitive position will earn my gratitude and put the argument to bed once and for all.

Buy a house ;)

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Leasehold flats are a nightmare. Many lenders won't touch it.

this is complete ball cocks, nearly all flats are leasehold and lenders have no problem with them at all.

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Correct. And if I were able to give one fair piece of honest advice to each and every person "out there" it would be ..."never, never, never buy a Leashold property - no exceptions if you are a private individual".

It is the biggest con of all time.

That's a bit absolutist. Leashold with a share in the freehold is ok so long as it's all set up correctly.

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this is complete ball cocks, nearly all flats are leasehold and lenders have no problem with them at all.

So long as the lease is a decent amount longer than the mortgage term that's correct. Getting a mortgage on a lease shorter than 30 years is a bit problematic I believe.

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I saw a dispute on one thread about ownership of mortgaged property. Some people think the mortgagee (lender) is the owner, others the mortgagor (borrower). And people get their knickers in a twist about who holds the deeds.

Have fun.

The Land Registry hold the deeds, electronically. Anyone can buy a copy for a few quid. They are not held by the banks as some sort of ransom.

Check out this example from the LR website.

www.landregistry.gov.uk/www/wps/QDMPS-Portlet/resources/example_register.pdf

It clearly lists the Registered Owners as the people who live there, NOT the bank

There. Two HPC myths destroyed.

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The Land Registry hold the deeds, electronically. Anyone can buy a copy for a few quid. They are not held by the banks as some sort of ransom.

Check out this example from the LR website.

www.landregistry.gov.uk/www/wps/QDMPS-Portlet/resources/example_register.pdf

It clearly lists the Registered Owners as the people who live there, NOT the bank

There. Two HPC myths destroyed.

If that's true then why do I pay my solicitors £20/year to store the deeds?

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If that's true then why do I pay my solicitors £20/year to store the deeds?

A hangover from the past plus the fact that there may be other docs along with the title deeds.

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This from The Leashold Advisory Service website

http://www.lease-advice.org/publications/documents/document.asp?item=7

LEASE, The Leasehold Advisory Service, is an Executive Non Departmental Public Body (ENDPB) funded by Government to provide free legal advice to leaseholders, landlords, professional advisers, managers and others on the law affecting residential leasehold in England and Wales.

What are your responsibilities?

Principally, these will be the requirements to keep the inside of the flat in good order, to pay (on time) a share of the costs of maintaining and running the building, to behave in a neighbourly manner and not to do certain things without the landlord's consent, for example, make alterations or sublet. The landlord has an obligation to ensure that the leaseholder complies with such responsibilities for the good of all the other leaseholders. These rights and responsibilities will be set out in the lease.

What happens if the leaseholder doesn't pay?

It is the leaseholder's obligation to pay the service charges and ground rent promptly under the terms of the lease. If they are not paid and the landlord is able to satisfy an LVT* that the charges are properly due and reasonable, then he can begin forfeiture proceedings by applying for a court order. The court has wide discretion where forfeiture is concerned, but if forfeiture is approved by a court, this can lead to the landlord repossessing the flat.

The landlord may also seek a county court judgment for payment.

* LVT = Leasehold Valuation Tribunal

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So long as the lease is a decent amount longer than the mortgage term that's correct. Getting a mortgage on a lease shorter than 30 years is a bit problematic I believe.

HSBC told me recently that they don't care as long as the mortgage term is exceeded by the leasehold term.

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I often wonder what would happen if you didn't pay the rent - would they ask you to take you flat and park it somewhere else?

The freeholder tears up your lease. Evicts you without any compensation. Draws up a new lease, and sells it to a new leaseholder (they are allowed to keep all proceeds from the sale). The leaseholder, then has a mortgage secured on a torn up piece of paper - and seeing as the mortgagee has lost their security, they're going to want all their money back from the mortgagor.

This can and does happen. However, it is infrequent following a change in the law about 20 years ago - which prevents the freeholder from terminating the lease, except in repeated and deliberate non-payment, where the arrears are substantial (minimum of £5k) and prolonged (at least 24-36 months of persistent arrears). Prior to 1988, it had been known for leaseholders to have the lease terminated for arrears of £50 or £100.

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Leasehold flats are a nightmare. Many lenders won't touch it.

Wrong way round, no-one has a problem with leasehold flats. Freehold flats are the problem, banks won't touch them. Without a lease to determine who owns what, and who is responsible when various parts go wrong then a property can quickly become worthless.

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this is complete ball cocks, nearly all flats are leasehold and lenders have no problem with them at all.

+1 we always get this anti-flat bu11shit on here whenever leasehold raises it's head. Of course there can be exploitative grasping freeholders (and the law should be tightened on that), but when you're living communally in a block of flats, the leasehold can be a positive benefit. I've had 2 leasehold properties in the past, and no problems whatsoever. For many people a well-run leasehold saves all sorts of neighbour disputes that might otherwise arise.

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HSBC told me recently that they don't care as long as the mortgage term is exceeded by the leasehold term.

That doesn't sound quite right to me. Surely the value of the collateral would be adversly affected by a shortening lease? Or maybe they only lend with enough equity for that not matter.

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That doesn't sound quite right to me. Surely the value of the collateral would be adversly affected by a shortening lease? Or maybe they only lend with enough equity for that not matter.

It didn't sound right to me, but it's what their mortgage adviser said. But this was before any discussion of deposits, valuation etc..

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+1 we always get this anti-flat bu11shit on here whenever leasehold raises it's head. Of course there can be exploitative grasping freeholders (and the law should be tightened on that), but when you're living communally in a block of flats, the leasehold can be a positive benefit. I've had 2 leasehold properties in the past, and no problems whatsoever. For many people a well-run leasehold saves all sorts of neighbour disputes that might otherwise arise.

Another thing that's worth pointing out in response to the anti leasehold brigade is that the leaseholders have the legal right to jointly purchase the freehold (at a price that is determined to be reasonable by the LVT) if 50% or more of the leasholders want to. This is generally the best situation as the flat owners then have joint ownership of the land but with the restrictions of the lease still in place to prevent any anti social behaviour etc.

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I saw a dispute on one thread about ownership of mortgaged property. Some people think the mortgagee (lender) is the owner, others the mortgagor (borrower). And people get their knickers in a twist about who holds the deeds.

In a classic mortgage, the mortgagor surrenders ownership to the mortgagee but retains the right to redeem the mortgage by an appointed date. Because time isn't of the essence of the contract, equitable rules allowed the mortgagor to redeem even after the date had passed - this is the equity of redemption (which is what we're talking about when we say a property has equity).

All of this changed in 1925 with a wave of the magic wand: statute came up with the legal fiction that a mortgage purporting to convey the fee simple/leasehold of a property actually created a term of years instead. So the mortgagor retains ownership.

You can read all about it here, sections 85 & 86:

http://www.opsi.gov....a_19250020_en_7

Have fun.

Its an extension of Logic and was for the advantage of Banks.

This enabled the bank to LEND to a BORROWER on pain of POSSESSION for DEFAULT.

If the bank owned the property, then there would be no remedy to the default, and banks dont want to become landlords...as this removes the advantage of possession a defaulted property by its own shell Company and hiding losses to its balance sheet.

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