Mortgages

Question 1

Are mortgages capable of being legal interests?

Answer 1

Yes.

A deed is required to make a legal mortgage. If the requirements of a deed are not satisfied, equity may intervene and recognise an equitable mortgage under Walsh v Lonsdale.

Question 2

Give an example of a mortgage created over a legal interest?

Answer 2

Co-owner of land creates a mortgage in relation to their equitable interest under a trust.

Question 2

Can a mortgage be created over an equitable interest?

Answer 2

Yes. It would need to comply with s53(1) LPA (ie be in wiring and signed).

Question 3

List the remedies available to a lender over a legal mortgage.

Answer 3

• Possession;
• Power of sale;
• Debt Action;
• Appointment of Receiver;
• Foreclosure.

Question 4

Which two remedies bring the mortgage to an end?

Answer 4

1) Foreclosure; and
2) Power of Sale.

Question 5

True or False: In practice the lender will only use their power of possession when the borrower is in default.

Answer 5

True.

Question 6

Explain the pre-action. protocol for a lender exercising their right to possession of the property.

Answer 6

Must be a dialogue between lender and borrower in attempt to resolve arrears prior to commencing possession proceedings.

Question 7

Explain the borrower’s protection in relation to possession proceedings.

Answer 7

1) Under s36 Borrower can ask the court to use discretion to:
a) adjourn proceedings; or
b) suspend execution or postpone date of possession.

2) S36 AJA 1970 above will apply where:
a) Lender has started possession proceedings;
b) proper includes a dwelling house; and
c) borrower is likely within a reasonable period to pay any sums due under the mortgage (ie the arrears).

Question 8

True or False: The court will not exercise discretion under s36 AJA where the borrower cannot demonstrate a detailed financial plan as to how they will repay the arrears.

Answer 8

True.

Question 9

Explain the 4 requirements for power of sale.

Answer 9

1) Lender must obtain possession;
2) Power of Sale must exist;
3) Power of sale must have arisen; and
4) Power of sale must have become exercisable.

Question 10

How do you tell whether a power of sale exists?

Answer 10

Either expressly stated within the mortgage deed or implied into every legal mortgage (provided s101 LPA 1925 has not been excluded).

Question 11

How do you tell whether the power of sale has arisen?

Answer 11

• Mortgage money must be due.
• Legal date for redemption will therefore have passed (usually 1 month into term) or any instalment of mortgage money has become due under an instalment mortgage.
• Instalment mortgages are norm for residential mortgages.
• Legal date for redemption will be expressed in the mortgage deed.

Question 12

How do you tell whether the power of sale is exercisable?

Answer 12

Either set out expressly in mortgage deed or lender will rely on one of the elements in s103 LPA 1925 as below:

1) Lender gave borrower notice to repay loan amount and it has not bee repaid for 3 months after such notice;

2) Interest is in arrears for two months after becoming due; or

3) Borrower has breached a term of the mortgage (other than covenant to pay the mortgage money or interest).

Question 13

When exercising power of sale, what two things must a lender ensure they do when selling the property?

Answer 13

1) Act in good faith, not cheating borrowers (ie out be properly advertised and not sold quickly at undervalue);

2) Take reasonable care to obtain true market value of the property. However, note that lenders are not under obligation to delay sale in order to maximise price of property.

Question 14

Explain the remedy of debt action available to the lender.

Answer 14

This is to recover debt borrower has not yet repaid.

Lender must recover the debt:
1) within 6 years for the recovery of interest; and
2) within 12 years for the recovery of capital.