Mortgages

Question 1

What is a mortgage?

Answer 1

A mortgage is the money advanced by a lender to a borrower to help purchase a property, with the borrower providing security by creating a mortgage over the property in favor of the lender.

Question 2

Can a mortgage be a legal interest?

Answer 2

Yes, mortgages are capable of being legal interests in land as per s 1(2)(c) LPA 1925.

Question 3

What is required to create a legal mortgage?

Answer 3

A deed is required to create a legal mortgage in relation to a legal estate (freehold or leasehold) as per s 52(1) LPA 1925.

Question 4

What happens if a mortgage document lacks the requirements of a deed?

Answer 4

Equity may intervene and recognize an equitable mortgage under the principle of Walsh v Lonsdale.

Question 5

What is a mortgagor?

Answer 5

The mortgagor is the owner of the estate in land borrowing money and giving the lender a mortgage as security for the loan.

Question 6

What is a mortgagee?

Answer 6

The mortgagee is the lender who has the benefit of the mortgage, enabling them to enforce their security.

Question 7

List the remedies available to a lender in relation to a legal mortgage.

Answer 7

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

Question 8

True or False: A borrower must be in default for a lender to exercise the right of possession.

Answer 8

False

Question 9

What does possession mean in the context of a mortgage?

Answer 9

Possession means either taking physical possession or directing tenants to pay rent to the lender.

Question 10

What must lenders comply with before seeking possession of a residential property?

Answer 10

Lenders must comply with the pre-action protocol to promote dialogue between lender and borrower.

Question 11

What is the purpose of the power of sale in a mortgage?

Answer 11

The power of sale allows the lender to sell the property to recover funds owed.

Question 12

What must exist for a lender to exercise the power of sale?

Answer 12

The power of sale must exist, have arisen, and become exercisable.

Question 13

What is the equity of redemption?

Answer 13

The equity of redemption is the right for the borrower to recover the assets subject to the mortgage upon repayment of the debt.

Question 14

What duties does a lender have when exercising the power of sale?

Answer 14

• Act in good faith
• Take reasonable care to obtain the true market value of the property

Question 15

What happens when a lender sells a property under a mortgage?

Answer 15

The buyer takes the whole estate of the borrower, free of any estates or interests which the lender took priority over.

Question 16

What must a lender do with the proceeds of sale?

Answer 16

• Pay costs of redeeming prior mortgages
• Pay lender’s expenses of sale
• Pay lender’s own mortgage
• Distribute any balance to those entitled to equity of redemption

Question 17

What is required for a mortgage over an equitable interest?

Answer 17

It must comply with s 53(1) LPA 1925, which requires it to be in writing and signed.

Question 18

Fill in the blank: A mortgage is a _______ over land granted as security for a loan.

Answer 18

[charge]

Question 19

What is the lender’s right regarding possession according to Four Maids Ltd v Dudley Marshall?

Answer 19

The lender has the right to take possession ‘before the ink is dry on the mortgage.’

Question 20

What is the significance of s 36 AJA 1970?

Answer 20

It allows the borrower to ask the court to adjourn possession proceedings or suspend execution.

Question 21

True or False: A lender can use violence to obtain possession of a property.

Answer 21

False

Question 22

What is the onus of proof in a case where a borrower claims a lender failed to obtain true market value?

Answer 22

The onus is on the borrower to show that there has been a breach of the duty of care.

Question 23

Who has the right to choose when to sell the Property?

Answer 23

The Bank

The Bank is not obliged to wait for an increase in property values.

Question 24

What must the Bank do to obtain the true market value of the property?

Answer 24

Take reasonable care at the date of sale

This may not be the case if the planning permission was not advertised prior to the auction.

Question 25

Who bears the burden of proving that the Property could have reached a higher price?

Answer 25

Beth ## Footnote If successful, the Bank would have to account for the difference between what could have been achieved and the sale price.

Question 26

What is the legal date for redemption in relation to debt action?

Answer 26

Must have passed before action can be taken ## Footnote Refer to section 5.5.2 for more context.

Question 27

What does the Limitation Act 1980 state about the recovery of interest?

Answer 27

Six years for recovery of interest ## Footnote Twelve years for the recovery of capital.

Question 28

What can a lender pursue if the proceeds of sale are insufficient to pay the debt?

Answer 28

The borrower for the shortfall as a debt action ## Footnote This situation is referred to as negative equity.

Question 29

When will a lender usually appoint a receiver?

Answer 29

If the property is producing income ## Footnote For example, if let to tenants.

Question 30

What must exist for the power of sale to be exercised?

Answer 30

The power must exist, have arisen, and be exercisable ## Footnote Refer to section 109(1) LPA 1925.

Question 31

What is required for a receiver to be appointed?

Answer 31

Appointment must be in writing ## Footnote It is at the lender's discretion who to appoint.

Question 32

What income can a receiver demand and receive from the property?

Answer 32

Income from the property ## Footnote Must be applied according to s 109(8) LPA 1925.

Question 33

List the expenses that must be paid from the income received by the receiver.

Answer 33

* Outgoings on the property * Interest on prior mortgages * Insurance premiums * Repair costs * Their own costs * Interest on the current mortgage * Capital on the current mortgage * Balance to the borrower

Question 34

Does the LPA 1925 grant the receiver power to sell the property?

Answer 34

No ## Footnote The mortgage terms may extend the powers of the receiver to include a power to sell.

Question 35

Who is the receiver deemed to be an agent for?

Answer 35

The borrower ## Footnote This means the borrower is solely responsible for the acts of the receiver.

Question 36

What are the duties of a receiver?

Answer 36

* Ensure personal interests do not conflict * Act in good faith * Act with reasonable competence * Take reasonable care to obtain true market value * May take steps to increase property value

Question 37

What must a receiver avoid in relation to their personal interests?

Answer 37

Conflict with their role as a receiver ## Footnote A receiver cannot purchase the mortgaged property in a personal capacity.

Question 38

What happens in the Foreclosure Nisi stage?

Answer 38

Preparation of accounts of what is owed followed by a payment period ## Footnote Usually lasts six months.

Question 39

What does Foreclosure Absolute do?

Answer 39

Vests title to the property in the lender and extinguishes the borrower's equity of redemption ## Footnote If the property is worth more than owed, the lender keeps the surplus.

Question 40

List the protections available for the borrower against foreclosure.

Answer 40

* Court discretion to re-open proceedings * Adjournment of proceedings for dwelling houses * Application for judicial sale under s 91(2) LPA 1925

Question 41

What is often confused with the remedy of foreclosure in popular dramas?

Answer 41

The lender exercising its power of sale ## Footnote Foreclosure is rarely accurately depicted.