Mortgages Flashcards
(26 cards)
s85/86 LPA and s23 LRA - The move to the charge and abandonment of mortgage by demise
s85 - mortgages may be created
either by demise for a term of years absolute, or by a charge by deed expressed to be by way of legal mortgage
s23 LRA abolishes mortgage by demise or sub-demise, but retains power to charge the estate.
Formalities for the creation of a charge (legal and equitable)
To be legal (since charges can exist at law - s1(2)(c) LPA 1925:
1. Deed (s52(1)
2. Registration (s27(2)(f) LRA 2002
Equitable mortgage?
1. Valid contract compliant with s2 LPMPA
2. Specific performance available
FCA + MCOB 11 - what do lenders need to consider + sanctions?
FCA create rules, principles and guidance for mortgages.
MCOB 11 - requires firms to consider whether customer will be able to pay sums due
Take into account: income of customer, tax, expenditure, quality of living, impact of future likely interest rate increases.
Interest mortgages only able to be entered into if lender has evidence customer has a repayment strategy, repayment strategy has potential to repay the money borrowed and any interest.
Sanctions include withdrawal of authorisation to lend, fines, compensation.
What rights do chargeholders have?
s87(1): Same rights as they would have as under a mortgage by conveyance - effectively gives them the right of the landowner
What gives the lender the ability to take possession?
s87(1) LPA - Mortgagee has same protection, powers and remedies (including the right to take proceedings to obtain possession).
Why is possession worrisome? Bristol and West Building (education) + O’Mahony
Heavy impact on borrower’s physical and mental health.
Impacts their family, eg disrupting children’s education - Bristol v Ellis
Disrupts ‘x factor’ home values identified by O’Mahony - financial investment, physical structure, physical territory, centre for self-identity, social and cultural unit.
Borrower may end up homeless.
When can a lender exercise right to possession? Priority/non-priority routes
When they have a charge (legal or equitable) - remember formalities.
+ they need priority - waiver/consent, acquisition mortgages, reg disp, overreaching
Without priority, they would need to look for sale under TOLATA, but more factors are considered here - priority better.
What legal obstacles exist for a lender to exercise right to possession (after formalities + priority?) - court orders
s126 CCA prohibits self-help - requires a court order for a regulated mortgage contract to be enforced.
What is a regulated mortgage contract? Made in course of business, to individual borrowers or trustees, and secured against land which at least 40% is a dwelling
This gives the borrowers the opportunity to plead defences.
Four-Maids v Dudley Marshall - When can the bank take possession?
Before the ink is dry on the mortgage UNLESS they have contractually agreed not to do so, and to wait for a certain condition ie borrower defaulting (which is common)
In practice they will not go into possession so early, unprofitable.
Lender being bona fide and reasonable? Quennell v Maltby
Lender will be restrained from getting possession unless it is sought bona fide and reasonably for the purpose of enforcing the security.
Considerations the lender must take when deciding whether to bring a possession claim
Forbearance - measures agreed between borrower and lender to avoid lender exercising possession.
Beneficial for both - lender makes more money if borrower gets back on track, as more interest charged than if they just sold.
MCOB 13 and MPAP
MCOB 13:
Requirements on lenders - must deal fairly, make reasonable efforts to reach an agreement, not attempting to repossess unless all other avenues have failed.
Number of forebearance options listed, such as extending term, changing type, interest etc.
Comes with threat of sanctions.
MPAP - Should be last resort, all other alternatives should first be exhausted. Parties should consider whether it is reasonable to take forebearance measures.
Court may decline to hear claim unless compliance satisfied
Issues with MCOB and MPAP
Only require reasonable efforts to pursue forbearance, consideration of forbearance.
Inconsistent application.
Defences to possession claims 1: s36 Administration of Justice Act
s36(1) - court may exercise powers if mortgagor is likely within a reasonable period to pay sums due under mortgage, or remedy a default.
s36(2) - powers include adjourning proceedings, suspending or staying execution of possession order, postponing date of delivery of possession.
Borrower must also be likely to pay future instalments - s8(2) AJA.
What is a reasonable period for the purposes of s36 AJA?
Cheltenham and Gloucester v Norgan - The court should take as its starting point the full term of the mortgage.
Rebuttable presumption.
Can be rebutted by considerations, such as how much the borrower can/will be able to pay, how long difficulties will last, reason for arrears, length of term etc.
Defence 2 to possession claims: Time order under s129 CCA 1974
s129: If it appears just to do so, court may make a time order.
This provides for payment at such times as the court considers reasonable. This can take into account things such as compliance with forbearance, whether borrower is having temporary difficulties, future prospects of repayment etc.
s135: Power to impose conditions on operation of any order, or suspend order.
s136: Power to vary agreements
When is it just to do so? Barnes
Consideration of all circumstances of the case, and of the position of the creditor as well as debtor.
These could involve factors like: impact on borrower and their household, whether the borrower is at fault, whether the borrower has taken steps to sort out their financial problems, or any unfair or unreasonable treatment by the lender (eg failure to meet regulatory obligations in MCOB or MPAP)
Home Equity Loans v Lewis - variation of terms
Debt rescheduled and increased in term, with interest rates slashed as they were extortionate.
Defence 3 to possession: Mental health crisis moratorium
Those who are in arreras (but not bankrupt), receiving mental health crisis treatment can apply, moratorium will last entirety of their treatment + 30 days.
During this time, lenders cannot start new possession claims, obtain warrant for possession, execute a possession order or take any other action to recover. They also can’t charge additional interest on arrears covered by the moratorium.
Additional restrictions on lenders: Selling
- Power of sale must have arisen
- Power of sale must be exercisable
s101 LPA - The power of sale must have arisen
Mortgage created by deed, when the mortgage money has become due, they have power to sell.
This applies only if and as far as a contrary intention is not expressed in the mortgage deed and is subject to the terms of the mortgage deed.
s103 LPA - Power of sale must be exercisable
Mortgagee shall not exercise power until:
1. Notice requiring payment served on mortgagor or one of two or more mortgagors, and default made for 3 months after such service; or
2. Some interest under mortgage is in arrear and unpaid for 2 months after becoming due; or
3. Some breach of provision in mortgage deed or this Act, other than a covenant for payment of mortgage money or interest therein
Consequences of exercising power of sale
- Lender contracts to sell property - borrower’s equity of redemption suspended (Waring), and purchaser acquires an estate contract under anticipation.
- Lender conveys borrower’s legal estate to purchaser who becomes new registered proprietor - Borrower’s equity of redemption overreached, lender’s charge extinguished, purchaser acquires legal estate, purchaser takes free of any interest whose priority is behind lender’s charge, purchaser takes free of any interest whose priority is unprotected.
- Proceeds of sale distributed in line with s105 LPA.
Silven Properties v OBS - Power of sale and duties owed to borrowers regarding sale price/timing
Mortgagee has unfettered discretion to sell when he likes, and can sell it as it is without any improvement.
However, has a duty in equity to the mortgagor to take reasonable precautions to obtain fair market value for the property.
