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SQE1: Land Law > Mortgages > Flashcards

Mortgages Flashcards

1
Q

Who are the mortgagor and the mortgagee?

A

The mortgagOR is the BORROWER

The mortgagEE is the LENDER (person with the benefit of the mortgage)

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2
Q

What is a mortgage?

A

Interest/charge over the land granted as security for a loan

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3
Q

Is a mortgage capable of being legal?

A

Yes - listed in s1(2)(c) LPA

Must be created using a valid deed & registered

  • Registered land: charge registered against the title affected
  • Unregistered land: triggers first registration (creation of legal mortgage protected by deposit of deeds binding against whole world)
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4
Q

What are the 5 remedies available for a lender in relation to a legal mortgage?

A
  • Possession
  • Power of sale
  • Debt action
  • Appointing a receiver
  • Foreclosure

Nb. Only exercise of power of sale & foreclosure will bring the mortgage to an end

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5
Q

What remedies are available to a lender who wants to bring the mortgage to an end?

A

Power of sale + Foreclosure

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6
Q

What is the lender’s right of possession?

A

Lender has the right to take possession as soon as the mortgage is completed (no default)

‘Possession’ means either:

  • Taking physical possession, or
  • Where the property is let, directing that the tenants pay their rent to the lender (instead of the mortgagor)

Usually used with other remedies eg. as pre-cursor to power of sale/appt of receiver

If the property is occupied as a dwelling a court order will be required & the borrower can seek the protection of s36 AJA

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7
Q

When does the lender has the power to possess the property?

A

‘Before the ink is dry’

ie. The moment the deed is signed (automatic right no default by the borrower necessary)

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8
Q

How is a borrower protected from the lender’s power of possession?

A

Lender cannot use or threaten violence to obtain possession if the property is occupied

If the property is residential, the lender must:

  • Get a court order for possession
  • Comply with the pre-action protocol: dialogue to attempt to resolve any arrears - eg. try to agree a more manageable payment schedule & enable borrower to continue living there

The borrower can ask the court under s36 AJA to:

  • Adjourn proceedings; or
  • Suspend execution of an order for possession or postpone the date for possession

s36 only applies when:
(a) Lender has started possession proceedings
(b) Property includes a dwelling house, and
(c) Borrower is likely within a ‘reasonable period’ to pay any sums due under the mortgage

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9
Q

What protections does s36 Administration of Justice Act give borrowers?

A

The borrower can ask the court to

  • Adjourn proceedings
  • Suspend execution of an order for possession or postpone the date for possession

Applies when:
(a) Lender has started possession proceedings
(b) Property includes a dwelling house, and
(c) Borrower is likely within a ‘reasonable period’ to pay any sums due under the mortgage

(‘Reasonable period’ has been defined to include the full remaining period of the mortgage)

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10
Q

When can the lender exercise it’s power of sale?

A

The power of sale must:

EXIST

  • Expressly stated in mortgage deed; or
  • Implied into a legal mortgage by s101 LPA

HAVE ARISEN

  • Mortgage money must be due
  • ‘Legal date for redemption’ must have passed (length of instalment period)

&

BECOME EXERCISABLE

  • Expressly set out in mortgage deed, or
  • Lender relies one of the three elements in s103 LPA 1925
    (i) Lender has given borrower the notice to repay the full loan amount & the borrower has not done so for at least 3 months, or
    (ii) Interest is in arrears for at least 2 months, or
    (iii) Borrower has breached another term in the mortgage (eg. to insure, keep in good repair)
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11
Q

When will the power of sale become exercisable?

A

Expressly set out in mortgage deed

or

Lender has given borrower notice to repay full loan amount & borrower hasn’t done so for at least 3 months

or

Interest is in arrears for at least 2 months

or

Borrower has breached another term in the mortgage (eg. to insure, keep in good repair)

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12
Q

What are the lenders duties on sale to the borrower?

A

Act in good faith & not cheat borrower
(eg. must be properly advertised, can’t sell at knock down price)

Take reasonable care to obtain the true market value of the property at the date of sale
- If fail to do so, must account to the borrower for the difference
- Not mentioning planning permission for houses (as well as flats) has been held as failure to obtain true market value

Nb. Lender can choose to when & how to sell

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13
Q

What is the equity of redemption?

A

The right for the borrower to recover the assets subject to the mortgage upon repayment of the debt

ie. If the property sale value is worth more than the sum owed to the lender, the equity of redemption is the remaining balance, which is payable to the borrower (or a subsequent lender)

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14
Q

What is the effect of sale when a lender exercises its power of sale?

A

Terminates the mortgage

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15
Q

How does the buyer of a property subject to a lender’s power of sale take the property?

A

Free of any estates or interests which the selling lender took priority over

BUT subject to any estates & interests which took priority over the selling lender

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16
Q

What must the lender do with the proceeds of sale of a mortgaged property?

A

The selling lender is a trustee of the proceeds of sale & must distribute them in accordance with s105 LPA to pay:

a. The costs of redeeming any mortgages with priority over the selling lender’s mortgage

b. Lender’s own expenses of sale

c. Lender’s own mortgage

d. Balance (if any) to the person(s) entitled to the equity of redemption (ie. subsequent lender &/or the borrower)

17
Q

What is the lender’s power of a debt action?

A

Lender can recover the debt owed by a court action

Legal date of redemption must have passed

Limitation Act 1980 limits lender’s ability to recover the debt to:
- 6 years for the recovery of interest
- 12 years for the recovery of capital

18
Q

What is a receiver & when is a lender likely to appoint one?

A

Receiver has the power to demand & receive income from the property
→ Use the income to pay:
1. Outgoings on the property
2. Interest on any prior mortgages
3. Insurance premiums, repair costs, receiver’s costs
4. Interest on the current mortgage
5. Capital on the current mortgage
6. Balance to the borrower

Usually appointed by lender if the property subject to the mortgage is producing income (eg. let to tenants)

19
Q

When can the lender appoint a receiver?

A

The power must

EXIST

  • Expressly stated in mortgage deed; or
  • Implied into a legal mortgage by s101 LPA

HAVE ARISEN

  • Mortgage money must be due
  • ‘Legal date for redemption’ must have passed (length of instalment period)

&

BECOME EXERCISABLE

  • Expressly set out in mortgage deed, or
  • Lender relies one of the three elements in s103 LPA 1925
    (i) Lender has given borrower the notice to repay the full loan amount & the borrower has not done so for at least 3 months, or
    (ii) Interest is in arrears for at least 2 months, or
    (iii) Borrower has breached another term in the mortgage (eg. to insure, keep in good repair)
20
Q

Can the borrower complain to the lender for any acts or omissions of a receiver?

A

No - because the receiver is deemed to be the agent of the borrower

21
Q

What are the duties of a receiver?

A

A. To ensure their personal interests don’t conflict with their role as a receiver

B. To act in good faith

C. To act with reasonable competence
- What this means depends on the nature of the particular property

D. To take reasonable care to obtain true market value of the property at date of sale (if receiver has power of sale under mortgage deed)

E. May (but not obliged to) take steps to increase the value of the property (eg. planning permission, letting it)

Nb. If interests of lender & borrower conflict, receiver should put interests of lender first

22
Q

What is the lender’s power of foreclosure?

A

A lender can foreclose a mortgage, which brings the mortgage to an end & vests the title in the lender

  • Must apply to High Court
  • If the property is worth more than the sum owed, the lender is still entitled to keep
  • Removes equity of redemption borrower might have
23
Q

What protections are available to the borrower & other third parties with an interest in the land re foreclosure?

A

Court has discretion to re-open foreclosure proceedings (even after the order)

Where the property is residential, borrower can apply to the court for adjournment of foreclosure proceedings

Application for a judicial sale instead

  • Preserves the equity of redemption in favour of the borrower
  • Can be made by any person with an interest in the equity of redemption (eg. another mortgagee)
24
Q

What is a legal mortgage protected by the deposit of deeds and is it binding?

A

A first legal mortgage created over unregistered title

(s85(1) LPA: lenders have right to take custody of the title deeds as part of their security)

A legal mortgage protected by the deposit of deeds is binding against the whole world

25
Q

What is a puisne mortgage?

A

A legal mortgage over unregistered land which is not protected by the deposit of deeds

Protected by registering a Class C(i) Land Charge

(If not entered, mortgage is void against a buyer for valuable consideration)

26
Q

What is priority of mortgages?

A

Where there is more than one charge registered against title, the order of priority depends on the order in which they are entered on the register (not the date of creation!)

→ The mortgage that appears first on the title register will rank first (ie. be paid first from the proceeds of sale)

27
Q

Is a mortgage over registered title a registrable disposition?

A

Yes - it will become a legal mortgage only when it is entered on the charges register of the title affected

28
Q

When exercising power of sale, will a lender be bound by any third party interests in the property?

A

If the interest was created before the date of registration of the mortgage, will only bind the lender if it is:

  • A registered charge
  • The subject of a notice in the register, or
  • An overriding interest in Sch 3 created prior to the date of completion of the mortgage (not the date of registration):
    Legal leases for 7 years or less
    Interests of a person in actual occupation
    Implied & prescriptive easements

If the interest was created after the date of registration, the lender is not bound (unless it gave its consent to the creation of the interest)

SQE1: Land Law (6 decks)

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