Legal Mortgages: Remedies

Question 1

What is the first remedy available to a mortgagee when a borrower fails to make agreed payments?

Answer 1

The first remedy for a mortgagee is to recover the debt by initiating an action for repayment.

This requires confirming that the legal date for redemption has passed, as the right to repayment arises only after this date.

Question 2

What must a mortgagee consider before commencing a recovery action for mortgage repayment?

Answer 2

Before starting a recovery action, the mortgagee must ensure:-
1. the legal date for redemption has passed and
2. that statutory limitations under the Limitation Act 1980 do not bar recovery. This includes checking that arrears of capital repayments are within 12 years and interest payments are within 6 years of becoming due.

Question 3

Why might pursuing a debt action for mortgage repayment provide limited assistance to mortgagees?

Answer 3

Debt action provides limited assistance because if a borrower has failed to make repayments, it’s unlikely they can satisfy a court order for repayment.

Mortgagees often find remedies against the property itself to be more effective due to the borrower’s financial incapacity to repay the debt through legal judgment.

Question 4

What is the legal date of redemption in the context of a mortgage?

Answer 4

The legal date of redemption is a specific date set in the mortgage agreement that marks when the borrower (mortgagor) has the right to repay the mortgage in full.

It defines the period after which the lender (mortgagee) can legally demand repayment, serving as a critical trigger point for various mortgagee remedies.

Question 5

How has equity’s intervention affected the enforcement of the legal date of redemption?

Answer 5

Equity’s intervention has made the strict enforcement of the legal date of redemption, where the mortgagee could take the land and sue for repayment if not met, largely redundant.

However, this date still plays a crucial role in determining when certain mortgagee remedies, such as the right to recover the debt, can be initiated.

It is typically set one month from the date of the mortgage.

Question 6

What are the conditions under which mortgagees can take possession of the mortgaged property both in the case of there being a lease and no lease?

Answer 6

Mortgagees can take possession if
1. there’s no lease, ousting borrowers to physically take the land, or
2. if there’s a lease, by directing tenants to pay rent to them instead of the borrowers.

This right is often exercised alongside other remedies, such as selling the property, to achieve a higher price with vacant possession.

Question 7

What legal precautions must mortgagees take when attempting to repossess mortgaged land?

Answer 7

Under s 6 of the Criminal Law Act 1977, mortgagees must avoid using or threatening violence during repossession, making it common practice to obtain a court order for possession to ensure compliance with the law.

Question 8

When can lenders under a legal mortgage take possession of the property, according to Harman J in Four Maids Ltd v Dudley Marshall?

Answer 8

Lenders can take possession of the property “before the ink is dry on the mortgage,” meaning immediately after the mortgage has been completed, unless the mortgage deed specifies otherwise, postponing this right until the borrower is in default.

Question 9

Why might a mortgagee seek possession of the mortgaged property?

Answer 9

Mortgagees may seek possession to intercept rents from tenants, recovering debts owed, or to sell the property with vacant possession, which typically commands a higher price.

Question 10

Give the name and date of the case described below

A mortgagee sought possession of a mortgaged property despite a provision stating the mortgage money wouldn’t be called in before a specific date, as long as interest payments were punctual. Although interest had previously fallen into arrear, it was not at the time of the hearing. The court granted an order for possession, postponed for two months, highlighting that a mortgagee’s right to possession is independent of the mortgagor’s default, contingent only on terms explicitly contracted out of in the mortgage agreement.

Answer 10

Four Maids Ltd v Dudley Marshall (Properties) Ltd [1957]

Question 11

When a mortgagee takes possession of a property, what obligations do they have regarding the management and income from that property?

Answer 11

When in possession, a mortgagee must manage the property with due diligence, using its income to repay the debt.

They’re entitled to the income but cannot take beyond what is owed.

If their management results in reduced income, they must account to the mortgagor for the actual income received and any lost income due to poor management.

Question 12

What is the consequence for a mortgagee in possession if they change the use of a property in a way that decreases its income potential?

Answer 12

If a mortgagee in possession changes the property’s use, such as converting a free house to a tied house, leading to decreased rental income, they are liable to account for the difference. They must pay the mortgagor the difference between the actual rent received and the rent that could have been achieved without such changes.

Question 13

Give the name and date of the case described below

A mortgagee in possession changes the use of a free house into a tied house in order to pay off the arrears owed. However, this change resulted in less income than could have been achieved with due diligence. The court held the mortgagee accountable for the difference in rent.

Answer 13

White v City of London Brewery(1889)

Question 14

Before a mortgagee can take physical possession of a property, what statutory considerations must they heed?

Answer 14

The mortgagee must consider the Criminal Law Act 1977 for any property, and for a dwelling-house, also the Administration of Justice Acts 1970 and 1973. These acts provide guidelines and restrictions on evicting mortgagors and taking possession of a property.

Question 15

What does s 36 of the Administration of Justice Act 1970 allow regarding mortgage possession proceedings?

Answer 15

s 36 allows courts to adjourn mortgage possession proceedings if they believe the mortgagor can repay the overdue amounts within a reasonable time, providing a protective measure for mortgagors to remedy defaults and avoid losing their homes.

Question 16

How does s 8 of the Administration of Justice Act 1973 impact what is considered “sums due” in mortgage possession proceedings?

Answer 16

s 8 specifies that “sums due” refers only to the arrears at the date of the possession proceedings, not the full amount outstanding.

This distinction allows courts to focus on the feasibility of the mortgagor repaying the overdue installments within a reasonable timeframe.

Question 17

What constitutes “a reasonable period” for a court to postpone a mortgage possession order?

Answer 17

“A reasonable period,” as defined by courts, aligns with the outstanding term of the mortgage.

During this time, borrowers can set up a repayment schedule to clear arrears or sell the property to pay back the debt.

This flexibility allows borrowers to remedy their default without immediate loss of their property.

Question 18

What does the case Ropaigealach v Barclays Bank clarify about a mortgagee’s right to re-enter a property?

Answer 18

Ropaigealach v Barclays Bank clarifies that a mortgagee has the right to physically re-enter and take possession of a property without court proceedings if the property is empty, bypassing s 36 of the Administration of Justice Act 1970 for the mortgagor’s benefit

Question 19

What protection does a mortgagor have against unlawful eviction by a mortgagee from an empty property?

Answer 19

A mortgagor’s protection against unlawful eviction from an empty property by a mortgagee is limited to criminal sanctions under s 6 of the Criminal Law Act 1977, emphasizing the act’s prohibition against using or threatening violence for repossessing a property.

Question 20

Under what circumstances can a mortgagee directly collect rents from tenants without needing a court order?

Answer 20

When a mortgaged property is let to tenants, a mortgagee can exercise the right to collect rents directly from them without a court order, effectively taking possession in terms of income generation without physically ousting anyone from the property.

Question 21

How does the Human Rights Act 1998 intersect with a mortgagee’s right to peaceable re-entry?

Answer 21

The Human Rights Act 1998 raises potential challenges to a mortgagee’s right to peaceable re-entry, based on the mortgagor’s rights to respect for private and family life and the peaceful enjoyment of possessions.

However, these challenges hinge on the balance between individual rights and public interest.

Question 22

What was the outcome of Horsham Properties Group Ltd v Clark and Beech regarding the Human Rights Act’s impact on mortgage possession?

Answer 22

In Horsham Properties Group Ltd v Clark and Beech, the court rejected the argument that a mortgagee’s deprivation of possession infringes the Human Rights Act 1998, justifying possession post-default as in the public interest and necessary for secure lending practices.

Question 23

What alternative to taking possession can a mortgagee utilize to manage the mortgaged property’s income?

Answer 23

A mortgagee can appoint a receiver to collect and manage the property’s income, avoiding personal liability for mismanagement while still using the income to repay the debt.

This appointment must be made in writing.

Question 24

Under what conditions can a mortgagee appoint a receiver according to the Law of Property Act 1925?

Answer 24

A mortgagee can appoint a receiver if:-
1. the mortgage was created by deed (s 101 LPA 1925) and
2. the legal date of redemption has passed, making the power exercisable similarly to the power of sale (s 109(1) LPA 1925).

Question 25

What triggers the mortgagee’s power to appoint a receiver under s 103 of the Law of Property Act 1925?

Answer 25

The power to appoint a receiver is exercisable when one of three conditions under s 103 of the Law of Property Act 1925 is met:
1. after a three-month default following a notice for payment,
2. interest arrears exceed two months, or
2. there’s a breach of the mortgage deed’s terms.

This ensures lenders can intervene and appoint a receiver to manage or sell the property efficiently when specific contractual obligations are not met by the borrower.

Question 26

How must a mortgagee appoint a receiver according to the mortgage deed and s 109 of the Law of Property Act 1925?

Answer 26

A mortgagee must follow the appointment method specified in the mortgage deed, if any.

Otherwise, s 109 of the Law of Property Act 1925 mandates that a receiver must be appointed in writing, ensuring a formal and traceable process.

Question 27

What are the powers and duties of a receiver as outlined in s 109 of the Law of Property Act 1925?

Answer 27

Under s 109 of the LPA 1925, a receiver can collect income, manage the property, and is deemed the agent of the mortgagor.

The receiver’s duties include applying income to pay property outgoings, prior mortgage interest, insurance premiums, mortgage interest, and, if directed, the capital. Any surplus is paid to the mortgagor.

Question 28

In what order must a receiver apply the income from a mortgaged property?

Answer 28

A receiver must apply the income firstly to
1. property outgoings, then to
2. interest on prior mortgages,
3. insurance premiums and their own costs,
4. the interest on the current mortgage,
5. the capital (if directed by the mortgagee), and finally,
6. any balance is paid to the mortgagor.

Question 29

Which remedies allow a mortgagee to recover the full sum owed under the mortgage?

Answer 29

The power of sale and foreclosure are remedies that enable a mortgagee to recover all sums owed under the mortgage.

Both remedies conclude the mortgage by either selling the property or claiming its title.

Question 30

How does the power of sale work for mortgagees?

Answer 30

When exercising the power of sale, mortgagees sell the mortgaged property, using the sale proceeds to repay the debt owed under the mortgage.

This remedy focuses on recovering the outstanding debt while also ending the mortgage agreement.

Question 31

What legal requirements must a mortgagee meet before exercising the power of sale?

Answer 31

A mortgagee must first confirm that the legal date for redemption has passed, indicating the power of sale has arisen (s 101(1)(i) LPA 1925).

Then, they must ensure it’s become exercisable, which happens when one of the conditions in s 103 LPA 1925 is met, such as
1. default in payment for three months after notice,
2. interest arrears for two months, or
3. a breach of mortgage deed terms.

Question 32

What protections do purchasers have when buying from a mortgagee exercising the power of sale?

Answer 32

Purchasers are protected under s 104 of the Law of Property Act 1925, ensuring their title is not impeachable based on the authorization, notification, or regularity of the sale.

Buyers need not inquire whether the sale was properly authorized, focusing instead on the legal transfer of property free from prior claims the mortgage had priority over.

Question 33

What duties do lenders owe to borrowers when selling mortgaged property, as illustrated by Cuckmere Brick Co Ltd v Mutual Finance Ltd?

Answer 33

In Cuckmere Brick Co Ltd v Mutual Finance Ltd, it was established that lenders must act in good faith and take reasonable care to obtain the true market value of the property at the sale date.

They are not required to delay the sale to maximize the property’s price but must ensure the sale reflects the property’s true value.

Question 34

What does s 104(1) of the LPA 1925 specify about the title passed to the purchaser in a mortgagee’s sale?

Answer 34

s 104(1) of the Law of Property Act 1925 specifies that a sale by the mortgagee conveys to the purchaser the full estate of the mortgagor, free from any estates or interests which the selling mortgagee had priority over, but subject to any that had priority over the mortgagee.

Question 35

How must the proceeds of a sale be distributed according to s 105 of the Law of Property Act 1925?

Answer 35

According to s 105 of the Law of Property Act 1925, the proceeds from the sale of a mortgaged property must be
1. used to redeem any prior mortgages,
2. cover the sale and
3. the mortgagee’s own mortgage expenses, and then
4. any balance is to be paid to those entitled to the property, which could be a junior mortgagee or the mortgagor.

Question 36

What is foreclosure?

Answer 36

Foreclosure is a remedy allowing a mortgagee to obtain ownership of the mortgaged property, terminating the mortgagor’s rights.

Question 37

When does the right to foreclosure arise?

Answer 37

This right arises when
1. the legal date of redemption has passed or
2. the mortgagor breaches the mortgage terms.

Question 38

How does foreclosure affect the ownership of a property?

Answer 38

Foreclosure vests the ownership of the property in the lender, permanently barring the borrower from redeeming it, unless the court exercises discretion to reopen the foreclosure based on equity considerations, such as the property’s value versus the outstanding mortgage amount.

Question 39

What are the two stages in the foreclosure process?

Answer 39

The foreclosure process includes:-

1. Interim Court Order: Sets a deadline for paying the outstanding debt. Failure to meet this deadline advances the process to the next stage.
2. Order of Foreclosure Absolute: Finalises the foreclosure, stripping borrowers of the right to redeem the property, unless the court decides otherwise.

Question 40

Why might lenders infrequently opt for foreclosure?

Answer 40

Foreclosure is used infrequently due to its drastic effect of permanently removing the borrower’s rights.

Lenders may prefer other remedies like selling the property, which allows recovery of the owed amount while potentially leaving a surplus for the borrower.

Question 41

How can foreclosure be avoided according to s 91(2) of the LPA 1925?

Answer 41

Under s 91(2) LPA 1925, any interested party can request a court to order the sale of the property instead of foreclosure.

This results in a less drastic outcome, allowing the mortgage to be paid off while potentially leaving surplus funds for the borrower.

Question 42

Who can request a court to order a sale instead of foreclosure, and under what conditions?

Answer 42

Any person interested in the mortgage money or the right of redemption, including the mortgagor, can request the court to order a sale of the property instead of foreclosure, as per s 91(2) of the LPA 1925.

Question 43

What specific actions can the court take under s 91(2) of the Law of Property Act 1925 in an action for redemption or foreclosure?

Answer 43

Under s 91(2) of the Law of Property Act 1925, the court can direct a sale of the mortgaged property without allowing any time for redemption or for payment of any mortgage money, on the request of the mortgagee or any person interested in the mortgage money or the right of redemption.

This directive can occur regardless of dissent from other parties or the absence of the mortgagee or interested person from the action.

The terms of the sale, including expenses and performance security, are determined by the court.