Lesson 5: Mortgages Flashcards
What is a mortgage?
A mortgage is a loan where the borrower provides security over their land to the lender, who has a charge over the property in return for the loan.
Who are the mortgagor and mortgagee?
The mortgagor is the borrower, and the mortgagee is the lender.
How is a legal mortgage created?
A legal mortgage is created by a deed, which must meet the requirements of the Law of Property Miscellaneous Provisions Act 1989.
What must a mortgage deed contain?
The deed must be in writing, signed, and executed according to legal formalities.
What is the purpose of a mortgage?
Mortgages are commonly used by property buyers to borrow money for purchasing property, and the lender has a security interest over the property.
Can there be multiple mortgages on the same property?
Yes, there can be more than one mortgage, and later chapters will explain priority rules.
What is the typical repayment structure of a mortgage?
Mortgages are typically repaid over many years, with monthly payments of principal and interest.
What remedies are available to a lender if the borrower defaults on a mortgage?
Remedies include taking possession, exercising a power of sale, taking a debt action, appointing a receiver, or exercising the right of foreclosure.
When can a lender take possession of the mortgaged property?
A lender can take possession as soon as the mortgage is completed, without the borrower being in default, though it’s usually done after default.
What are the lender’s duties when taking possession of a property?
The lender must not use violence, must obtain a court order for residential properties, and must account for any rents received.
When can a lender exercise the power of sale?
The power of sale can be exercised after the legal date for redemption has passed and certain default conditions are met, such as arrears in payments.
What protections exist for the borrower when the lender exercises the power of sale?
The lender must act in good faith, advertise the property for sale properly, and aim to sell at a fair market value.
What is the effect of the sale of a mortgaged property?
The sale ends the mortgage, and the proceeds must be distributed according to the Law of Property Act, prioritising the payment of mortgages.
What is a debt action in mortgage law?
A debt action is a court action to recover the outstanding debt from the borrower once the legal date for redemption has passed.
What is the limitation period for recovering mortgage debts?
The limitation period is six years for interest and twelve years for capital.
When can a lender appoint a receiver?
A receiver can be appointed when the mortgaged property generates income, such as rental income, and is usually done in case of default.
What are the duties of a receiver appointed by a lender?
A receiver must manage the property and income responsibly and is deemed to be the borrower’s agent, making the borrower liable for their actions.
What is foreclosure in mortgage law?
Foreclosure is a severe remedy where the lender applies to the court to transfer the property’s title to themselves, removing the borrower’s right to redeem the mortgage.
What happens if the property is worth more than the debt in foreclosure?
The lender keeps the surplus value of the property.
What happens if the property is worth less than the debt in foreclosure?
The borrower is released from liability for the remaining balance.
Is foreclosure commonly used in practice?
No, foreclosure is rarely used due to various protections for the borrower and the severe nature of the remedy.
