Mortgage & Land Flashcards
Transfer of rights of ownership?
Conveyance
What do you own when owning property?
Everything above and below ground
How is transfer achieved
By paying Stamp Duty tax on papers to transfer ownership
Legal Charge Creation
- Lender will execute a legal charge
- Charge is created by Mortgage Deed
Mortgage Deed
- Contains Borrower and Lender information and how they are both bound
- Cannot be changed without mutual consent of all borrowers and lender
- Lender has power over the property while indebted
- Borrower is Mortgagor
- Lender is Mortgagee
Law of Property Act 1925
Reduced the ways property is owned
- Freehold
- Leasehold
- Under 18 can’t hold interest in land
- 2 or more loans are allowed
- Priority of payment to first registered
- Borrower has the right to let (often excluded by Lenders)
- In event of default, legal remedies set out
- Lender is not liable for any loss
- Lender can decide how proceeds from an insurance claim is spent - protecting security
Mortgage by legal charge
- Most Common
- Deed states property is charged with debt as security for loan
- Borrower owns from outset
- Lender removes the charge on full payment
Mortgage by Demise
Abolished 2002
- Bank owns property until full payment
- Can only be used on unregistered property today
Second & Further Mortgages (Puisne Mortgage)
- Secured Loans by another lender
- Charge higher rate to reflect higher risk
- Deed allows for further advances of 1st charge without drawing up a new deed.
- Further Advances are top-ups from original lender
Default
- Loans are paid in order of registration
- The rest is given to the borrower
Joint owners
- Legal owners registered at land registry
- Can transfer/mortgage property as long as they’re all in agreement
- Up to 4 legal owners
Equitable Owners
- Beneficial owners not registered at land registry
- Can’t transfer the land
- Most often transferred on death
Joint Tenants
- Both own 100% of property
- Can’t be overridden by a will
- IHT may apply is 50% of residence is over £325k Nil Rate Band & they are not married
Tenants in Common
- Each owner has 50% share
- Restriction on Title & Land Registry to prevent one from selling without the others knowledge.
Tenants in Common on Death
- On death, survivor takes ownership via Equitable share (right of Survivorship)
- Deceased heirs cannot force sale
- Equitable ownership can be transferred to any stated beneficiary.
Joint & Several Liability
- Lender can pursue debt with both
- If one moves out they’re still liable
- Lender can give authority to remove a borrower if the other can’t afford it.
Tenure
The way property is help
- Freehold
- Leasehold
- Commonhold
Freehold
- Fee Simple, (can be inherited) Absolute (no limit or restrictions on changes) in possession (immediate entitlement)
- Crown has overriding authority
- Still restrictions by local auth etc.
- Title may have restrictions on changes
- May have easements & Covenants
- Utility companies have statutory rights to access
- Some residential can’t be used for business
- Planning permission required for changes
- Obligation to people passing or entering land
Flying Freehold
- Overhangs e.g. Balcony or underlies e.g. cellar another persons freehold
- Lenders reluctant to lend unless
+ Contractual obligation to maintain land
+ Contractual obligation to give access for repair
Leasehold
Terms of years (Specified number of years) Absolute (ownership of lease doesn’t stop, is passed to beneficiaries on death)
- Freeholder leases to leasehold for specified time
- Leaseholder is paying for right to use property, not the bricks and morter
- Lease created through headlease
- Sublease allowed if agreed by headlease
- Sublease, when an individual takes leasehold property
Leasehold Restrictions
- Usually same as freehold with some additional from their freeholder
- Freeholder may place restrictions on alterations in common areas
Leasehold Term
- The term is important to lenders
- Leases too short or restrictive impact resale prospect
- ## Lenders like leases 30-40 yrs longer than the mortgage term, in case of forced sale
Leasehold Ground Rent
- Nominal amount £50-£200 PA
- A clause can be added to increase rent at a certain time
- Rent rises are usually very small
Leasehold Forfeiture
When leaseholder doesn’t comply with the lease
- Can result in termination of the lease & land reverting back to the freeholder
- Freeholder rights take precedence over lender
- Lenders insure against this
- Lenders also include a clause permitting the lender to fulfil the terms of the lease if the borrower doesn’t
Commonhold & Leasehold Reform Act 2002
- Ability for leaseholders to collectively buy the lease "Enfranchisement" - The right to extend their own lease - A right to collectively manage lease - 3rd way to own land - Commonhold
Buying the lease
Leaseholders can collectively buy a lease if... - Original Lease is over 21 years - Leaseholder must be qualifying tenant Non-qualifying - Charitable housing - Landlord - Commercial Purposes - If leaseholder owns more than 1 flat in a building
Extending a Lease
- Act allows an individual to extend a lease after 2 years of ownership by 90 years.
- Extension cost must be reasonable
- Freeholder can’t usually refuse
Lease extension before sale
- Can take time and may delay the sale
- Must factor in cost which may make it unaffordable
Lease extension - commence the process
- To commence the process and assign the lease to the new purchaser.
- Responsibility of cost sits with the new owner
Right to Manage
Commonhold & Leasehold reform act 2002 introduced the right to manage the lease.
Right to manage qualifying rules
- At least 2 flats & residential purposes
- 2/3rd of flats with min 21yr term
- No more than 25% for commercial use
- 50% block agrees
- Cannot qualify if it’s a flat conversion with 4 flats or more and the original owners still owns a flat or has in the last 12 months.
Right to manage procedure
- Establish RTM company with articles of association & Directors
- Non - participant leaseholders should be invited
- Freeholder is sent notice in two weeks
- Freeholder can challenge claim in 1 month
- With no counter, RTM effective in 4 months
- With counter, RTM company can apply to 1st tier tribunal in England or Leasehold Valuation in Wales.
- RTM takes over & consults freehold on alterations
- Freehold can join RTM company
- RTM now enforces lease obligations
- RTM can’t use forfeiture procedure if leaseholder breaches lease agreement
Commonhold
with commonhold & leasehold reform act 2002
- Commonhold is a new freehold with division of ownership
- All owners have freehold of their own property
- Commonhold areas owned by commonhold association
- Commonhold is a company with memorandum & articles of association
- Blocks of flats owned as commonhold to not depreciate in value near the end of the lease like a leasehold.
- Management charges paid by commonhold assessment
- Association are responsible for running the development & raising service charges
- Shareholders vote at AGM
- Share size is based on the size of the property
- Only unit holders can be shareholders
- Association can appoint 2 non-unit holder directors
+ Freeholder rights are superior to Leaseholder
+ Commonhold - no individual rights are superior to the unit holder
Barriers to Commonhold replacing Leasehold
- Fewer lenders provide commonhold as they’re not confident in resale value
- Risk to developers as it’s new and demand is unknown
- All parties have to agree to convert from freehold to commonhold
Land Registry
Set-up to record ownership of land and propert in England and Wales
Land Registration
- State guarentees the validity of who owns the land
- Records owner rights (easements) and Obligations (covenants)
- Compulsory since 1990
- Act 2002 - Electronic record keeping
First Registration of Land
Includes all properties since 1990, first registration occurs when…
- When a property is transferred
- A lease is granted for 7+yrs
- A legal charge is created
Easements
The right that one property has over another
- There are Dominant and Servient Tenants
- Each tenement must be owned by different people
- Easement can’t impose a positive burden
Positive Easement
- Owner of the land can do something on or to a neighbours land
E.g. right of way/right to light
Negative Easement
Owner of land can block their neighbour doing something.
E.g. blocking light
When easements can be distinguished
- The owner comes to own both properties
- After stated expiration date
- If it hasn’t been used for 20 years
Covenants
- An agreement or promise to do something
- Applies to a single property
- ## Person who establishes this is called the beneficiary
Positive Covenant
What owners must do e.g. Maintain boundary
- May include costs: e.g. paying for access maintenance
- Original person may insert a deed in the land registry to make future owners do it as well.
Restrictive Covenant
What owner cannot do e.g. no caravans/livestock
How to remove covenants
to remove covenants you’d need to see if you could identify the beneficiary.
Identified Beneficiary
- Both parties agree on the change (fee may be payable)
Unidentified Beneficiary
- Removal through land tribunal (Expensive)
- Acquiring an indemnity policy
Land Registration - Property Register
- Identified Land with details of freehold/leasehold
- Description (address)
- Reference to plan (title plan)
- Title number
- Lists the right e.g. beneficial easements
Land Registration - Proprietorship Register
Identifies owners of land incl…
- Name and address of owners
- Nature of title
- Date of registration
- Any restrictions
- Class of title
- Type of security
Title Classes
Absolute Title - Highest
Good Leasehold
Possessionary Title
Adverse Possession - Lowest
Absolute Title
Freehold with good title or leasehold 21yrs+
Good Leasehold
- 7yrs+ remaining
- Freehold title is in question
- Freeholder hasn’t produced evidence of freehold to land registry
- Land registry don’t know of any restrictions that effect the property
Possessionary Title
- Good Title can’t be granted
- Deed was lost before it was registered
- Previous owners may have a claim to the property
Adverse Possession (Squatters)
Unregistered land
- Squatter can gain rights after 12 years if not contested by the owner
Registered Land
- Squatter can make a claim after 10 years
+ Land registry will contact owner, if uncontested the squatter can gain absolute title.
+ If contested, registration is refused unless the occupier can prove their claim to the land
Qualified Title
Where there is some defect in the title - Rare
Charges Register
Details 3rd Party Rights
- Debt
- 1st Legal Charge
- Official receiver charges
- Negative easements
- Restrictive covenants
- Details Puisne Mortgages
Registration of registered land
- Transfer of ownership must be done within 30 days of transfer of completion
- 30 days is priority period where the new owner has priority over claims and charges.
- Failure to do this in 30 days could mean that other interests will be registered and could take priority
Registration of unregistered land
- Mandatory since 1990
- Rights over unregistered land are registered in land charges register
- When lenders assess they will look at the last 15 years
- If someone has been there with the owners knowledge for, they might be able to claim the property - squatters rights
- When land is first registered it must be done within 2 months
- Done by paying stamp duty
- If not done in two months, the transaction is void.
Chancel Repair
Chancel - area around the alter
- Middle ages the rectory was responsible for repair
- As land was sold, the responsibility of repair was passed on to the new owners.
- Applies to church land pre 1536
- Property owners must be made aware via land registry
- Parocial church council (PCC) register notice pof chancel repair liability in the charges register.
- If land is unregistered PCC can register a demand of chancel repair against first registration.
PCC loss of right to register notice of Chancel Repair
- Registered property is sold without a notice being registered before sale
- Unregistered property is registered without caution
PCC Chancel Repair Registration Notice
- PCC can register any time before completion (notice or caution)
- ## Once registered it applies to current and future owners
Searches for Chancel Repair
Solicitor identifies in searches
- They conduct search if no registration in potentially affected areas
- Detailed search on national archives
Chancel repair liability insurance
2 Types:
1) Covers the cost of repair of liability not known at time of purchase (PCC can register notice or caution any time before completion)
2) To cover cost of repair when a notice has been registered or caution noted (more expensive)
Title Guarantees
Before the lender lends they conduct a security assessment.
Borrower - credit & affordability
Property - valuation
Contract for sale will state the sell title guarantee level
- Lender will always insist on Full Title Guarantee as they do not want any 3rd party involved for forced sale situations
Full Title Guarantee
Highest rated
- No charges, encumbrances or rights of a 3rd party
Limited Guarantee
Since the owner has had the property they have not created additional charges
No Title Guarantee
Lowest Level
Matrimonial Interest
Family law act 1996
- Non-owning spouse rights are protected by way of a notice in the land registry - specifically the charges register.
- Prevents former spouse from transferring land without consent or knowledge and until financial settlement has been resolved.
- Notice is only valid while married
- Adults over 17 must sign consent to mortgage removing them from this notice.
- Act covers adult children, and spouses
- Doesn’t cover cohabiting couples.
Overriding Interests
- Adult Occupants not party to the mortgage can gain an interest in the property.
- Land &Registry Act 1925 protects non-owning inhabitants
- Lender establishes occupants at application 17+
- 17+ sign consent to mortgage waiving their right to residency.
- Must swear before a notary of their own free will. #
- 17 because they might be 18 before completion
Title Search Details
- Easements
- Restrictive Covenants
- Matrimonial Interest or 17+ consent to mortgage
Bad results on a title search
- Lender may refuse to lend, get a re-evaluation or take out indemnity insurance.
- Indemnity insurance protects the lender if someone claims the property and defective title e.g. no planning permission.
- Cost of insurance usually 0.10% of the property value.
7 Lender Rights
1) To charge Capital, Interest & other fees
2) Call in debt
- Borrower default
- Bankruptcy
- Compulsary purchase order - i.e. Road widening
3) Insure property & charge client if they don’t
4) Let the 1property if they repossess
6) Transfer the mortgage to another lender with borrower consent
7) Make further advances without a mortgage deed
7 Borrower Covenants
Within the Mortgage Deed
1) Make payments in accordance of the deed
2) Insure property at all times
3) Comply with legislation and local Authority bylaws
4) Not let without lenders consent
5) Keep property in good repair & allow access to check this
6) Comply with title including covenants & easements
7) If leasehold comply with lease conditions
