Mortgages

Question 1

What are the formalities of a legal mortgage?

Answer 1

• created by deed
• clear on face intended to be deed
• validly executed
• delivered
• registered at land registry

Question 2

What is the effect if a legal mortgage is not registered at the land registry?

Answer 2

Not legal mortgage but may be equitable mortgage

Question 3

How may an equitable mortgage arise?

Answer 3

• Mortgage of equitable interest
• Defective legal mortgage

Question 4

What formalities need to be met for there to be an equitable mortgage where the borrower only holds an equitable interst in the land?

Answer 4

• in writing
• signed by guarantor

Question 5

What formalities need to be met for there to be an equitable mortgage where there is a defective legal mortgage?

Answer 5

• in writing
• contain all agreed terms
• signed by mortgagor and mortgagee

Question 6

When is a mortgage considered fully discharged?

Answer 6

Removed from charges register at land registry

Question 7

What are the discharge of mortgage forms and their use?

Answer 7

• DS1: mortgage over whole of land
• DS3: mortgage over part of land

Question 8

What is the equity of redemption?

Answer 8

• Equitable right to redeem
• No postponement or prevention of redemption
• No collateral advantages
• No unconscionable terms

Question 9

What is the equitable right to redeem?

Answer 9

allows borrower to repay loan any time after legal date for redemption has passed

Question 10

What is the legal date for redemption?

Answer 10

The first day that the loan can be repaid

Question 11

When will the courts allow postponement of the legal date for redemption?

Answer 11

No clog or fetter on equity of redemption

Question 12

When are the courts more likely to consider postponement of the legal date for redemption as being a clog/fetter on the equity of redemption?

Answer 12

Leasehold property

Question 13

When may the courts not declare a lender’s option to purchase as void?

Answer 13

• Granted in subsequent transaction independent to mortgage
• Granted same day but completely separate

Question 14

What is a solus tie?

Answer 14

condition that borrower buys all its supplies from lender

Question 15

When will a solus tie be upheld?

Answer 15

Commercial transaction where it ends during the mortgage term

Question 16

What is likely to be an important factor when considering whether a term of a mortgage is unconscionable?

Answer 16

imbalance of bargaining power

Question 17

What are the principles to consider where it is argued that a high interest rate is an unconscionable term?

Answer 17

• penalty interest rate for default exceeds lender’s losses = void
• Can have higher interest where poor credit history
• can have higher interest where lender in financial difficulties

Question 18

What is the typical form of undue influence regarding mortgages?

Answer 18

One party has influence/ascendancy over the other and takes advantage

Question 19

For undue influence, which relationships have an irrebuttable presumption that one party has influence over the other?

Answer 19

• parent
• trustee
• solicitor
• doctor

Question 20

When will the court determine that a transaction is the product of undue influence?

Answer 20

• relationship of trust and confidence
• transaction requires explanation

Question 21

What is the equitable remedy for undue influence?

Answer 21

Contract set aside (discretionary)

Question 22

When may the court not allow setting aside the contract for undue influence?

Answer 22

• delayed in making claim
• unclean hands

Question 23

When will a bank be regarded as put on inquiry with regards to mortgages?

Answer 23

One party in non-commercial setting is standing as surety for the other party

Question 24

What is the consequence if a bank is put on inquiry with regards to mortgages?

Answer 24

Must follow etridge guidelines

Question 25

What are the Etridge guidelines?

Answer 25

- write to spouse re need for confirmation from independent solicitor - ask them to nominate - not proceed until confirmation

Question 26

What is the order of priority for legal mortgages?

Answer 26

Order in which entered on the register

Question 27

What is the order of priority for equitable mortgages?

Answer 27

Order of creation

Question 28

How does protecting an equitable mortgage by notice on the charges register affect the order of priority?

Answer 28

- take priority over subsequent legal mortgages - do not take priority over former equitable mortgages

Question 29

How can lenders alter the order of priority?

Answer 29

Deed of priority or intercreditor deed registered at land registry

Question 30

What duty are lenders under when pursuing remedies if a mortgagor fails to make payments?

Answer 30

Act fairly and reasonably

Question 31

Which remedies are open to equitable mortgagees?

Answer 31

Debt action Foreclosure Receiver

Question 32

Which remedies are open to legal mortgagees?

Answer 32

Debt action Foreclosure Receiver Possession Sale

Question 33

How is debt action usually taken as a remedy for non payment of the mortgage?

Answer 33

In addition to other remedies eg where there is negative equity

Question 34

What is the limitation period for an action in debt for non payment of a mortgage?

Answer 34

12 years for debt, 6 years for interest

Question 35

What rule is important for possession as a mortgage remedy?

Answer 35

For residential cases, must be a last resort

Question 36

What is the function of a receiver as a remedy for non payment of the mortgage?

Answer 36

get income from land before sale and apply to outstanding debt

Question 37

Why is appoiting a receiver a safe option for a lender?

Answer 37

Deemed borrower's agent

Question 38

What is the advantage of foreclosure for a borrower?

Answer 38

Extinguishes all other mortgages and the debt

Question 39

When does the right to repossess arise?

Answer 39

As soon as the mortgage is granted

Question 40

Is a court order required for repossession?

Answer 40

No but criminal offence to use/threaten violence so prudent to obtain one

Question 41

What is the statutory limitation on repossession?

Answer 41

Where land includes dwelling, court has power to postpone date for delivery of possession for such period as it thinks reasonable

Question 42

Can the statutory limitation on repossession be used where there has been no application for an order for possession?

Answer 42

No

Question 43

How may the power to sell a mortgaged property exist?

Answer 43

- express power in deed - implied by statute

Question 44

When does the statutory power to sell a mortgaged property arise?

Answer 44

Capital and interest: as soon as one payment due Interest only: legal redemption date

Question 45

What happens where a mortgagee sells a property after the power to sell has arisen but before they are able to exercise the power?

Answer 45

innocent purchaser is valid but lender liable in damages

Question 46

When does the statutory power to sell a mortgaged property become exercisable?

Answer 46

Where one applies: * Notice requiring payment of whole loan served and borrower has defaulted * Interest unpaid and in arrears for two months * Some other breach of mortgage provision

Question 47

What duties are lenders under when exercising the power to sell?

Answer 47

- balance own interests and borrowers - hand surplus funds to person next entitled

Question 48

What are the case law principles regarding a lender's right to sell and the associated duties?

Answer 48

- duty to obtain true market value - perfection as to price not required - duty to take expert advice on sale method, marketing strategy and price - lender has unfettered discretion on when to sell