Chapter 7: Mortgage Law Flashcards
Because she had been transferred, Velma lists her home for sale at a price of $100,000. She bought the house only six months ago, and at that time financed the purchase by means of an $80,000 mortgage with a three year term. She receives an offer from ABC Ltd. for the full purchase price, payable by $20,000 cash and the balance by ABC Ltd. assuming the $80,000 mortgage. The president and sole shareholder of ABC Ltd. is a very wealthy real estate developer easily able to afford the payments. Which of the following statements is TRUE?
1.) The financial profile of ABC Ltd. is crucial because the company, not its president, is assuming the mortgage.
2.) If the lender subsequently impairs the security by assigning the mortgage, Velma need only worry about foreclosure.
3.) ABC Ltd. had to assume the full $80,000 mortgage amount because an assumption is always for the face value of a mortgage.
4.) All of the above are true.
1.) The financial profile of ABC Ltd. is crucial because the company, not its president, is assuming the mortgage.
Because she had been transferred, Velma lists her home for sale at a price of $100,000. She bought the house only six months ago, and at that time financed the purchase by means of an $80,000 mortgage with a three year term. She receives an offer from ABC Ltd. for the full purchase price, payable by $20,000 cash and the balance by ABC Ltd. assuming the $80,000 mortgage. The president and sole shareholder of ABC Ltd. is a very wealthy real estate developer easily able to afford the payments.
Assume that Velma accepted the offer having assured herself that ABC Ltd. was financially sound. She also had ABC Ltd. sign an agreement covenanting to make the mortgage payments and to indemnify her if any action was brought against her on her personal covenant. However, the worst happened, and ABC Ltd., as a result of some very poor investments, got into financial difficulty and defaulted on the mortgage. The original term of the mortgage is not yet expired, consequently the mortgage has not been renewed or in any other way materially altered. Which of the following statements is TRUE?
1.) Because of the indemnity agreement ABC Ltd. signed, Velma need not worry about any legal proceedings brought against her by the mortgagee.
2.) Provincial property legislation alters the common law rule of privity of contract and gives the mortgagee the right to sue both ABC Ltd. and Velma on their personal covenants as well as seek foreclosure.
3.) Velma’s liability under her personal covenant in the mortgage is extinguished by statue and she cannot be sued by the mortgagee.
4.) If Velma is found liable to the mortgagee she can recover from ABC Ltd. or its president.
2.) Provincial property legislation alters the common law rule of privity of contract and gives the mortgagee the right to sue both ABC Ltd. and Velma on their personal covenants as well as seek foreclosure.
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. Consider the following statements about provincial property legislation and the release of an original borrower from liability under the personal covenant. Which of the statements is TRUE?
1.) The legislative release does not apply on these facts since the mortgage involved is a residential mortgage.
2.) If Beasely telephones Mah’s and Mah’s gives 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 legislation, then Mah’s will not be able to continue to hold Beasely responsible for Willy’s performance of the mortgage obligations, in certain provinces, due to provincial property legislation.
4.) Both (2) and (3) are true.
3.) Mah’s may not refuse unreasonably to grant the assumption, and if Beasely satisfies the requirements of the legislation, then Mah’s will not be able to continue to hold Beasely responsible for Willy’s performance of the mortgage obligations, in certain provinces, due to provincial property legislation.
Dante granted a 5 year mortgage with no right of prepayment to Beatrice. At the end of the mortgage period, Beatrice agreed to extend the term of the mortgage for a further 5 years with no right of prepayment. The date of the mortgage was not altered. Six months later, Dante inherited a sum of money and wanted to pay off the mortgage. Beatrice says that he is not entitled to do so. Which of the following statements is TRUE?
1.) Section 10 of the Interest Act does not give Dante the right to prepay his mortgage on these facts.
2.) As an individual mortgagor, Dante could have prepaid his mortgage at any time, including during the first term, by tendering the full amount of the mortgage debt along with three months’ interest in lieu of notice.
3.) Dante has the right to tender the payment in accordance with section 10 of the Interest Act at any time after the end of the initial 5 year period.
4.) If Dante tenders payment along with the three months’ interest to Beatrice and she does not want to accept the tender, she can still require Dante to make his payments of principal and interest as they fall due.
3.) Dante has the right to tender the payment in accordance with section 10 of the Interest Act at any time after the end of the initial 5 year period.
Which of the following statements about s.10 of the Interest Act are True?
A. Section 10 only applies to residential mortgages of $150,000 or less.
B. Section 10 provides an absolute right to prepay a mortgage after 5 years from the date of the mortgage.
C. Section 10 does not provide corporate mortgagors with the right to tender prepayment of a mortgage.
D. After the mortgagor has made a tender in accordance with s.10 the mortgagee may not claim any additional interest.
E. A non-corporate mortgagor will be able to make a tender under s.10 after 5 years have elapsed from the date of the mortgage.
F. If, at the end of the term, the parties renew the mortgage for an additional 5 years and move the date of the mortgage forward, the mortgagor will not be eligible to prepay his mortgage in accordance with s.10 until an additional 5 years has elapsed.
1.) C, D, E and F only
2.) A, C and D only
3.) B and D only
4.) A, B, and D only
1.) C, D, E and F only
Maurice operates a beauty salon in a small shop which he owns. He decides to expand the size of his shop by doing a renovation. To finance the renovation Maurice granted a mortgage on his shop to Beauty Corp., an international manufacturer of hair and skin care products. Beauty Corp. loaned Maurice $150,000 for a period of 8 years at an interest rate of 15.5% calculated yearly but not in advance. The mortgage contained the following terms:
CLAUSE A : In case the borrower defaults and the mortgagee has to take legal action to recover the mortgage monies, the mortgagee may retain an amount equal to thee months at the specified rate of interest by way of indemnity.
CLAUSE B: In consideration of one dollar receipt of which is hereby acknowledged, the borrower grants to the mortgagee an irrevocable option to purchase the mortgaged property at any time within the mortgage term for a payment of $200,000.
CLAUSE C: The borrower agrees t use and sell only the mortgagee’s lines of hair and skin care products for a period of 10 years from the date of this mortgage.
CLAUSE D: In the event the borrower sells or agrees to sell the mortgaged property, the full amount of principal and interest owing shall become due and payable immediately, at the mortgagee’s option.
Which of the following statements is TRUE?
1.) Clause A is an enforceable clause designated to protect a mortgagee from bearing expenses related to recovering its money where a borrower defaults.
2.) Clause A is a clog on the equity of redemption and for that reason is unenforceable.
3.) Clause A is a collateral advantage which is unenforceable under the Consumer Protection Act.
4.) Clause A is an indemnity clause which is unenforceable because it offends against the Interest Act.
4.) Clause A is an indemnity clause which is unenforceable because it offends against the Interest Act.
Maurice operates a beauty salon in a small shop which he owns. He decides to expand the size of his shop by doing a renovation. To finance the renovation Maurice granted a mortgage on his shop to Beauty Corp., an international manufacturer of hair and skin care products. Beauty Corp. loaned Maurice $150,000 for a period of 8 years at an interest rate of 15.5% calculated yearly but not in advance. The mortgage contained the following terms:
CLAUSE A : In case the borrower defaults and the mortgagee has to take legal action to recover the mortgage monies, the mortgagee may retain an amount equal to thee months at the specified rate of interest by way of indemnity.
CLAUSE B: In consideration of one dollar receipt of which is hereby acknowledged, the borrower grants to the mortgagee an irrevocable option to purchase the mortgaged property at any time within the mortgage term for a payment of $200,000.
CLAUSE C: The borrower agrees t use and sell only the mortgagee’s lines of hair and skin care products for a period of 10 years from the date of this mortgage.
CLAUSE D: In the event the borrower sells or agrees to sell the mortgaged property, the full amount of principal and interest owing shall become due and payable immediately, at the mortgagee’s option.
Which of the following statements is TRUE?
1.) Clause B would be enforceable if it (or the entire document) were under seal.
2.) Clause B is an example of a “sales clause”.
3.) Clause B is a valid option to purchase supported by consideration, which is enforceable during the term of the mortgage.
4.) Clause B constitutes a clog on the equity of redemption an is unenforceable.
4.) Clause B constitutes a clog on the equity of redemption an is unenforceable.
Maurice operates a beauty salon in a small shop which he owns. He decides to expand the size of his shop by doing a renovation. To finance the renovation Maurice granted a mortgage on his shop to Beauty Corp., an international manufacturer of hair and skin care products. Beauty Corp. loaned Maurice $150,000 for a period of 8 years at an interest rate of 15.5% calculated yearly but not in advance. The mortgage contained the following terms:
CLAUSE A : In case the borrower defaults and the mortgagee has to take legal action to recover the mortgage monies, the mortgagee may retain an amount equal to thee months at the specified rate of interest by way of indemnity.
CLAUSE B: In consideration of one dollar receipt of which is hereby acknowledged, the borrower grants to the mortgagee an irrevocable option to purchase the mortgaged property at any time within the mortgage term for a payment of $200,000.
CLAUSE C: The borrower agrees t use and sell only the mortgagee’s lines of hair and skin care products for a period of 10 years from the date of this mortgage.
CLAUSE D: In the event the borrower sells or agrees to sell the mortgaged property, the full amount of principal and interest owing shall become due and payable immediately, at the mortgagee’s option.
Which of the following statements is TRUE?
1.) Clause C is a valid collateral advantage which is enforceable for the specified period.
2.) Clause C is an unenforceable restraint on trade.
3.) Clause C is a collateral advantage which may be enforced against Maurice only while the mortgage continues in force.
4.) Clause C is a clog on the equity of redemption because it continues longer than the mortgage term, and is therefore unenforceable.
1.) Clause C is a valid collateral advantage which is enforceable for the specified period.
Maurice operates a beauty salon in a small shop which he owns. He decides to expand the size of his shop by doing a renovation. To finance the renovation Maurice granted a mortgage on his shop to Beauty Corp., an international manufacturer of hair and skin care products. Beauty Corp. loaned Maurice $150,000 for a period of 8 years at an interest rate of 15.5% calculated yearly but not in advance. The mortgage contained the following terms:
CLAUSE A : In case the borrower defaults and the mortgagee has to take legal action to recover the mortgage monies, the mortgagee may retain an amount equal to thee months at the specified rate of interest by way of indemnity.
CLAUSE B: In consideration of one dollar receipt of which is hereby acknowledged, the borrower grants to the mortgagee an irrevocable option to purchase the mortgaged property at any time within the mortgage term for a payment of $200,000.
CLAUSE C: The borrower agrees t use and sell only the mortgagee’s lines of hair and skin care products for a period of 10 years from the date of this mortgage.
CLAUSE D: In the event the borrower sells or agrees to sell the mortgaged property, the full amount of principal and interest owing shall become due and payable immediately, at the mortgagee’s option.
Which of the following statements is TRUE?
1.) Clause D is a sales clause which enables a mortgagee to avoid being involved with a borrower who is an unacceptable credit risk.
2.) Clause D prohibits the assumption of a mortgage.
3.) Clause D is unenforceable because it offends against the Interest Act.
4.) Clause D is an enforceable collateral advantage.
2.) Clause D prohibits the assumption of a mortgage.
Which of the following statements about the provisions of the Interest Act is FALSE?
1.) A lender may charge a penalty on the default only if the mortgage document sets out the increased rate payable calculated on an annual or semi-annual basis.
2.) Where a mortgage stipulates the payment of interest but does not set out the rate, the rate allowed is 5%.
3.) A mortgage can require payments of principal with interest to be calculated and paid separately, or blended payments of principal and interest.
4.) Where a mortgage is required to state the rate of interest payable calculated yearly or half-yearly not in advance and it fails to do so, no interest may be charged.
1.) A lender may charge a penalty on the default only if the mortgage document sets out the increased rate payable calculated on an annual or semi-annual basis.
Jack wants to build and extension on his house and needs to raise $20,000 to finance the addition. In which one of the following scenarios does Jack NOT create an equitable mortgage?
1.) Jack grants a second mortgage to his back for $20,000.
2.) Jack grants a mortgage to his father for $20,000, and does the documentation himself, unfortunately it is an unregistrable form.
3.) Jack grants a first mortgage to his bank and the bank registers the mortgage in the land title office.
4.) Jack’s first mortgage is for 65% of the value of his house, he mortgages the equity of redemption for a further 10% of the value of his house.
3.) Jack grants a first mortgage to his bank and the bank registers the mortgage in the land title office.
Which of the following examples represents a clog on the mortgagor’s right to redeem?
1.) Theo grants a 5 year mortgage to Teddy over his corner store and is required as a condition of the loan to agree to purchase all his dairy products from Teddy for a 5 year period.
2.) Zwieback and Co. Ltd. grant a mortgage to a commercial lender that cannot be prepaid for 15 years.
3.) Carina grants a mortgage to Val that contains a clause prohibiting the assumption of the mortgage.
4.) Luigi grants a mortgage to Dominic that gives Dominic the right to purchase the property at any time during the term of the mortgage.
4.) Luigi grants a mortgage to Dominic that gives Dominic the right to purchase the property at any time during the term of the mortgage.
The equitable right to redeem:
A. can me mortgaged
B. can continue even after the contractual right to redeem has been terminated.
C. arose to make the law of mortgages more fair to the borrower.
D. is usually of 3 months duration.
Which of the above completes a TRUE sentence?
1.) D only
2.) A and B only
3.) A, B, and C only
4.) All of the above complete true sentences.
3.) A, B, and C only
Greg is the registered owner of Bradyacre which has a market value of $600,000. Greg borrowed the funds to purchase the property from his family and there are four mortgages registered against his title: a first mortgage of $300,000 held by Marsha; a second mortgage of $200,000 with Jan; a third mortgage of $120,000 with Cindy; and a fourth mortgage of $30,000 with Bobby as lender. Greg defaults on all payments. Marsha begins foreclosure proceedings and the property is ultimately sold by judicial sale for $650,000. Real estate commission and legal costs are $30,000. How much money will Bobby recover upon the distribution of the proceeds of the judicial sale?
1.) $30,000
2.) $0
3.) $15,000
4.) $10,000
2.) $0
Assuming a foreclosure action is occurring in British Columbia, when an order absolute is obtained by a petitioner, and the petitioner is in the position of a second mortgagee:
1.) the petitioner may sell the property after taking title to it and the petitioner does not have to account to the mortgagor for any profit made.
2.) the petitioner will be entitled to recover the mortgage debt upon sale of the property, but must account to the borrow for any surplus amount.
3.) in the case of a shortfall between the sale proceeds and the mortgage debt, the petitioner can sue the borrower on the borrower’s personal covenant to pay.
4.) in order to sell the property, the petitioner must obtain the approval of the court.
1.) the petitioner may sell the property after taking title to it and the petitioner does not have to account to the mortgagor for any profit made.
