5. Mortgages Flashcards
(33 cards)
If a building society grants a mortgage and is seeking to recover arrears, what are the best remedies for them?
- Debt Action
- Possession
- Appointing a Receiver
Best remedies for banks looking to secure repayment of the ENTIRE mortgage sum at once
- Power of sale
- Foreclosure (rare)
Are mortgages capable of being legal interests in land? Formalities?
- Yes
- Created in a Deed
- Registered in the charges register
If there are multiple mortgages over one registered property, which has ‘priority’?
Mortgage entered on the charges register first
If the mortgagee exercises their power of sale, how will they know if they sell the property subject to any third party interests?
- Mortgagee will take land subject to all estates, interests and rights which have priority
- To take priority, IARE or RD must be entered on the land’s title by the DATE OF REGISTRATION of the mortgage
- for an overriding interest to take priority it must be in existence by the time the mortgage deed is completed
Limitation Period for Debt Actions (2)
- Mortgagee cannot recover arrears of the capital repayments if more than 12 years have passed since the payments first became due’
- ‘The lender cannot recover arrears of interest payments if they have been outstanding for more than 6 years’
Outcome of a successful debt action
outstanding mortgage payments will be made to mortgagee
Two outcomes of ‘taking possession’
- if the mortgaged land is not subject to a lease, the lender can oust the borrower from the property and take possession of the land (get vacant possession to sell)
- If the land is subject to a lease, can direct tenant to pay rent to the lender (intercept rent)
When can the lender take possession under a legal mortgage?
Generally, ‘as soon as the ink is dry’ but mortgage deeds may expressly / impliedly postpone this until borrower is in default
If a mortgagee wants to ‘take possession’ by intercepting rents, do they need a court order?
No
If a mortgagee wants to ‘take possession’ by removing current borrower - what must they do?
- Comply with provisions of CLA 1996
- Obtain court order
A mortgagee pursues a court order for possession. The borrower thinks they will be able to repay the sums due within a reasonable time, can they defend the claim?
Yes, the court can exercise its discretion to allow mortgagor to repay sums due
- if the mortgage deed provides for sum to be repaid in instalments, ‘sums due’ = instalments in arrears at the date of possession proceedings only
Can a mortgagee take physical possession of a house without court proceedings?
Yes, although if it is a dwelling house, the mortgagor in occupation is protected by s 6 CLA 1977 which would impose criminal sanctions on the mortgagee
Effect of ‘appointing a receiver’
This remedy is an alternative to taking possession, the mortgagee appoints a receiver to collect and redirect the income from the property.
Requirements for appointing a receiver:
- Mortgage must be created by deed (power to appoint implied into all)
- power has arisen and has become exercisable
- receiver must be appointed in writing
‘Power must have arisen’ meaning
the legal date of redemption has passed (usually 2 months after mortgage creation)
Three ways that a ‘power’ (ie. of sale or of appointing a receiver) can become ‘exercisable’
Power becomes exercisable when:
1. The lender has served notice on the borrower requiring repayment of the loan and borrower has failed to comply with that notice for THREE months after service
2. interest due under the mortgage is two months or more in arrears
3. the borrower has breached a term under the mortgage deed (eg. borrower’s covenant not to grant a lease without first obtaining lender’s consent)
If the mortgagee appoints a receiver to receive income from the property, how must this income be applied?
Must pay in this order
a. outgoings on property (including receiver’s fees)
b. interest on any prior mortgages
c. insurance premiums on property and thier costs
d. interest on current mortgage
e. capital on mortgage if mortgagee directs them to do so in writing
f. the balance to the borrower
If the mortgagee appoints a receiver who is negligent, is the mortgagee liable to the borrower?
No, the receiver is an ‘agent’ of the borrower so borrower would have no legal recourse against the lender
Duties of the receiver to the lender and borrower
- ensure personal interests do not conflict
- act in good faith
- act in reasonable competence
- take reasonable care to obtain true market value of the property at the date of sale (if they have the power of sale)
Does a receiver have the power to sell the mortgaged property?
Not under statute but usually under the terms of the mortgage (may also stipulate that receiver must be appointed by deed)
When does a mortgagee have the ‘power of sale’
- All mortgages created by deed have a power of sale implied into them
- power must have arisen and become exercisable
If a mortgagee is exercising the power of sale, what must they do to fulfil their duty to obtain true market value of the property?
The lender must try to do this and will discharge this duty if they have exposed the property to the market properly and fairly
If the mortgagee is exercising their power of sale and have not been able to find a buyer at market value, are they required to delay the sale to maximise the purchase price?
No, but if they fail to obtain true value they must account to the borrower for the difference - and the onus is on the borrower to show there has been a breach in the lender’s duty of care
