Lenders right to sell and duties when selling Flashcards
Is a court order needed to exercise a power of sale?
No - it is a right
Where does the right to sell come from?
Express power of sale will be included in the mortgage documents
In the absence of express power there right can be implied under LPA S101 unless it is excluded or modified in the mortgage deed
When does the right to sell arise?
statutory right arises when the mortgage money has become due
If an interest only mortgage - capital will not be due until the end of the loan term. The money due will become due at the legal redemption date usually 6 months from the start of the mortgage.
If a capital and interest repayment mortgage - power of sale arises as soon as one portion of capital is due, meaning that it arises as soon as one payment is due.
If lender sells after the power has arisen but before it is exercisable a sale to an innocent purchase will be valid but the lender will be liable in damages to the borrower.
When does the right become exercisable?
Where the right is express = wording will set out when it is exercisable
If it is a statutory right = the power will become exercisable only when at least one of the criteria in s103 LPA applies
What are the s103 criteria?
Notice requiring payment of the whole loan has been served by the lender and the borrower has defaulted
Interest is unpaid and arrears for at least 2 months - it does not need to be a large sum as long as it has just been outstanding for 2 months
There has been some breach of another mortgage provision such as a covenant to keep the mortgaged property insured or in good repair - so anything that affects the value of the security
What are the lender’s duties when exercising the right to sell?
Lender has to balance his and borrowers interests
After the sale the lender is the trustee of any surplus of the sale proceeds and must hand them to the person next entitled- eg another lender or the borrower
What are some case law principles for lenders duties
Lender owes borrower a duty to take reasonable care to obtain the true market value or proper price for the property
Lender will not be liable for losses if he obtains a price within the correct bracket or within an acceptable margin of error
Lender should not use an auction- expected to seek expert advice as to the method of sale and strategy and the reserve price
Lender has an unfettered discretion to sell and cannot be expected to delay sale to improve the property or wait for an upturn in the property market
