chapter 11 property law act Flashcards
In September of 1994, Hilary borrowed money from Big Bucks Bank to finance the launching of her new health food store. As security for the loan, Hilary mortgaged her house. In 1997, Christine bought the house and assumed the mortgage. One year later she stopped making payments on the mortgage. Which of the following statements is TRUE?
- Big Bucks Bank cannot sue Christine because she was not a party to the original mortgage agreement.
- If Big Bucks Bank fails to demand the outstanding payment from Hilary by December 1999, her liability will be extinguished by virtue of the Property Law Act provisions.
- After an order absolute, Hilary would only be liable for any amount still outstanding after foreclosure on the property.
- None of the above
Correct Answer: 4
Only option (4) is correct. The Property Law Act provides a means of circumventing the privity of contract principle, and allows a lender to take direct action against a current owner. The provisions of the Property Law Act which limit a vendor’s liability in the case of default in an assumed mortgage are not applicable if the loan was not initially for a residential purpose. Finally, if the lender elects to pursue an action in foreclosure, following the order absolute the lender will no longer be entitled to pursue the borrower on the borrower’s personal covenant to pay.
Beasely owns a house subject to a 5 year mortgage granted to Mah’s Finance Co. The mortgage provides that it can be assumed with the permission of the lender. Willy wants to buy Beasely’s house and assume the mortgage which still has three years left to run. Mah’s agrees to the assumption but informs Beasely that it still intends to hold Beasely liable if Willy defaults. Which of the following statements about the Property Law Act is TRUE?
(1) The Property Law Act does not apply on these facts since the mortgage involved is a residential mortgage.
(2) If Beasely telephones Mah’s and Mah’s give oral consent to the assumption of the mortgage, then Beasely is free from all liability under the mortgage.
(3) Mah’s may not refuse unreasonably to grant the assumption, and if Beasely satisfies the requirements of the Act then Mah’s will not be able to continue to hold Beasely responsible for Willy’s performance of the mortgage obligations.
Both (2) and (3) are true.
Correct Answer: 3
The Property Law Act provisions regarding an original borrower’s release from liability upon assumption of the mortgage apply only to residential mortgages. To release the original borrower from liability, the lender’s approval of the new purchaser must be in writing.
