Land 2 - Mortgages

Question 1

What are the requirements for a legal mortgage?

Answer 1

• Valid deed
• Registered as a charge

Question 2

What 2 rights are automatically granted by mortgage to a lender?

Answer 2

1. Right to Possess Property (to ensure it’s vacant for sale)
2. Power to Sell Property

Question 3

In what 2 ways can an equitable mortgage arise?

Answer 3

1. Mortgage of an Equitable Interest: borrower holds equitable interest in land - they are not the legal owner
2. Defective Legal Mortgage: not a valid deed OR not completed by registration; but (for either) complies with estate contract requirements

Question 4

What must be done when a mortgage is repaid in full?

Answer 4

Mortgage entries at Land Registry must be cancelled

Question 5

What is ‘Equity of Redemption’?

Answer 5

Borrower has an equitable right to redeem
Equity will look unfavourably & be prepared to declare void any term trying to postpone/prevent redemption

Question 6

How is the financial value of equity of redemption calculated?

Answer 6

Market value LESS outstanding debt

Question 7

What 3 principles apply to equity of redemption?

Answer 7

1. It supplements legal right to redemption
2. No postpone/prevention of redemption: won’t allow a clause that prevents redemption altogether; an option to purchase may be declared void if granted at same time as mortgage
3. No collateral advantages: solus tie is upheld if ends within mortgage term; other collateral terms struck out if unconscionable

Question 8

What is undue influence and its effect on a mortgage?

Answer 8

The borrower has the right to be protected from undue influence
Where undue influence is found, mortgage is unenforceable (bank can’t repossess/sell)

Question 9

When should a procedure for undue influence be taken with regard to mortgages?

Answer 9

In every domestic case, where a private individual offers his property as security for someone else’s debts

Question 10

What procedure should a bank take to not be liable for undue influence?

Answer 10

1. Write to party granting mortgage NOT for their benefit, saying that they need confirmation from an independent solicitor that transactions been explained to them
2. Ask party to nominate solicitor
3. Provide all info to solicitor
4. Don’t proceed to lend until confirmation received

Question 11

What procedure should a solicitor take to ensure undue influence isn’t present?

Answer 11

1. Meet relevant party face-to-face and on their own
2. Explain reason for meeting & documents/transaction in non-technical language
3. Point out risks & show there’s a choice
4. Keep detailed attendance note
5. Send letter to said party confirming what was discussed
6. Send certificate to the bank

Question 12

What is the order of priority for legal mortgages?

Answer 12

Order in which they were registered

Question 13

What is the order of priority for equitable mortgages?

Answer 13

Order of creation

Question 14

What happens to the order of priority where an equitable mortgage is protected by notice?

Answer 14

• That mortgage will take priority over a subsequent legal mortgage
• Will not affect priority between competing equitable mortgages though - always on date of creation
• legal mortgage will take priority over equitable mortgage not protected

Question 15

How can priority rules of mortgages be modified?

Answer 15

By postponement of pre-existing interest
Lenders agree to alter position/order with agreement registered

Question 16

What remedies are there for a lender?

Answer 16

1. Debt Action
2. Appoint a Receiver
3. Foreclosure
4. Possession
5. Right to Sell

Question 17

What can’t be done WITHOUT a court order for an equitable mortgage?

Answer 17

• Possession
• Right to Sell

Question 18

What limitations are there on lenders on the right to possess?

Answer 18

1. Criminal offence to use/threaten violence to gain entry (makes possession by self-help risky)
2. Follow process for residential property
3. Common Law Jurisdiction to Postpone (see notes)
4. Statutory Jurisdiction to Postpone

Question 19

What is required for the lender’s right to sell to exist?

Answer 19

(a) There’s an express power of sale (in mortgage documents)
(b) Implied power under statute unless excluded/modified

Question 20

When does the lender’s right to sell arise?

Answer 20

As soon as one payment becomes due

Question 21

When is a lender’s right to sell exercisable?

Answer 21

When one of the following applies:
- Notice requiring payment served & borrower defaults
- Interest unpaid for at least 2 months
- Some breach of another mortgage provision

Question 22

What duties does a lender owe when exercising a right to sell?

Answer 22

(a) reasonable care to obtain proper price for property
(b) Perfection as to price isn’t necessary
(c) Must get expert advice on method of sale, marketing strategy and reserve price
(d) Lender has unfettered discretion as to when to sell