8) Mortgages, Pledges, Cessions

Question 1

what is personal security based on?

Answer 1

on personal rights – private obligations

Question 2

what is real security based on?

Answer 2

real right – to property (tan/int)

Question 3

how does personal security work?

Answer 3

if D does not pay, C can go after other person who undertook to pay

Question 4

how does real security work?

Answer 4

asset belonging to D is given as security to C who can foreclose and have the asset executed to cover the debt

Question 5

what is foreclosure?

Answer 5

go to court and get a judgement and execute the asset to cover the debt

Question 6

mortgagor vs mortgagee?

Answer 6

mortgagor = D
mortgagee = C

Question 7

what are the 3 req for a mortgage?

Answer 7

1) valid underlying/principal obligation
2) property of another
3) creation of ltd. real right

Question 8

valid underlying obligation?

Answer 8

• the security is a accessory obligation to the loan – no loan, no security
• still separate contracts though

Question 9

property of another for mortgage?

Answer 9

• mortgagee has limited real right in property of another
• property must be imm
• mortgager owns property

Question 10

how ltd real right created for mortgages?

Answer 10

• signed written agreement between parties (only personal right at this stage; must comply with NCA)
• register agreement at Deed’s Office to create ltd. real right

Question 11

effect of mortgage on ltd real right?

Answer 11

• no ownership, just ltd real right
• if D defaults = court order to pay, if not = execute against property

Question 12

acceleration clauses in mortgages?

Answer 12

miss one payment and entire loan becomes immediately repayable

Question 13

what must the court consider for foreclosure?

Answer 13

• NCA requirements met (were procedures followed)
• PIE

Question 14

what must the court consider for foreclosure of a primary residence?

Answer 14

• the summons which draws D’s attention to s26(1) of Const. giving everyone the right to adequate housing – in execution infringes, argue this
• consider other means of settling (movables)
• credit history, size of claim
• reserve price

Question 15

when may the court refuse execution?

Answer 15

• if small amt
• D and dependents could become homeless
• abuse of process by bank
• D qualified for debt review

Question 16

what is PIE?

Answer 16

Prevention of Illegal Eviction from Land – can only evict if just and equitable (property could be sold, but occupiers stay)

Question 17

what is parate executie?

Answer 17

if D defaults, C can execute without going through courts

Question 18

what is pactum commissorium?

Answer 18

if D defaults, C can take over the property

Question 19

PE and PC in mortgages?

Answer 19

PE not allowed
PC only allowed if C buys at FV

Question 20

effect of mortgage on mortgagee rights?

Answer 20

mortgager cannot deal with property in any way that infringes on mortgagee rights – consent needed for sale/transfer; not for leasing

Question 21

secured creditor’s preference in general?

Answer 21

• gets first preference on property if an unsecured creditor applies it for execution first
• must be notified

Question 22

what happens if security is insufficient to cover the secured creditor’s claim?

Answer 22

will claim the remainder as a concurrent claim

Question 23

when will a mortgage bond NOT offer security?

Answer 23

• debt incurred >2 months before bond registration AND
• debt not previously secured AND
• estate seq within 6 months of bond registration
  (C will be left with concurrent claim)

Question 24

ranking for multiple bonds over one property?

Answer 24

ranks in order of date of registration of the bond

Question 25

how is a mortgage terminated?

Answer 25

• pmt/discharge of the loan
• merger – C becomes owner
• alienation of property (transferred via inheritance – mortgage cancelled, C receives balance owed to them)

Question 26

pledger vs pledgee?

Answer 26

pledger = debtor
pledgee = creditor

Question 27

creation of ltd real right under pledge?

Answer 27

• agreement between parties to pledge the item (may be governed by NCA)
• delivery of item to place in possession (can be actual or symbolic) – when real right created

Question 28

key elements of possession?

Answer 28

• intention to HOLD as security, not OWN
• physical control

Question 29

ltd real right effects under a pledge?

Answer 29

• cannot use the item – only hold
• required to care for / store property, but expenditure can be recovered from D and secured by pledge
• only has right if possession

Question 30

PC and PE for pledges?

Answer 30

• PE allowed if not against public policy
• PC not allowed unless FV

Question 31

debtor defaults / pledgee pref / insolvency for pledges?

Answer 31

same as with mortgages

Question 32

how is pledge terminated?

Answer 32

• loss of property / possession
• destruction of property
• pmt / discharge of obligation

Question 33

creation of ltd real right for a cession?

Answer 33

same as pledge, except no delivery is required, and documents evidencing the right need not be delivered either

Question 34

cedent vs cessionary?

Answer 34

cedent = D
cessionary = C

Question 35

effects of cession on cedent?

Answer 35

cedent cannot enforce the ceded right while cession is in exercise (but still has the related powers)

Question 36

if cedent defaults?

Answer 36

• foreclose the property, same as before
• cessionary can claim performance ito the ceded right directly from 3P instead of selling – surplus returned to cedent

Question 37

cessionary’s preference in general / insolvency of cedent?

Answer 37

same as before

Question 38

when is cession terminated?

Answer 38

once principal debt is paid

Question 39

pledge vs pawn transaction?

Answer 39

pawn has time limit for pmt, pledge does not