mortgages Flashcards
A solicitor acts for the owner of a freehold factory block (‘the Property’) subject to a mortgage (by deed) in favour of a bank (‘the Bank’). The Property is currently vacant since the owner’s business closed. The owner has not paid the mortgage payments for six months. The Bank believe the Property is worth £350,000 and the owner owes £370,000. The Bank would like to end the mortgage.
Which of the following is the best approach for the Bank to pursue?
Response Single correct
Option a: Seek an order for foreclosure to bring the mortgage to an end and vest title in the Property in the Bank.
Option b: Take possession immediately with a view to redirecting income from the Property to the Bank.
Option c: Appoint a receiver to demand and receive income from the Property.
Option d: Pursue a debt action against the owner to recover the money owed to the Bank.
Option e: Exercise the power of sale and pursue a debt action against the owner for any shortfall.
The correct option is E.
Exercise of the power of sale will end the mortgage. As the value of the Property is lower than the debt, the Bank can pursue a debt action against the owner for the difference.
Taking possession, pursuing only a debt action and appointing a receiver do not end the mortgage. Therefore, options B, C and D are wrong.
Foreclosure would end the mortgage. However, it is not in the Bank’s interest to foreclose as this would extinguish the mortgage and leave the Bank with no remedy to recover any shortfall from the owner. Option A is not therefore the best answer.
A woman owns a garden centre. When she bought the property, she took out a 15-year interest only mortgage with a building society for the sum of £250,000. It is now eight years later and, unfortunately, the business has not been as successful as she had hoped. However, as a result of the market being buoyant the property is currently worth around £300,000.
The woman is in financial difficulty and has not been able to pay the interest payments on the loan for the last four months.
Which of the following remedies would be the best for the building society in the circumstances?
Single correct
Option a: Take possession of the property to redirect the rental income from the property.
Option b: Use the power of sale to sell the property.
Option c: Appoint a receiver to take control and receive income from the property.
Option d: Seek an order for foreclosure.
Option e: A debt action to recover the arrears due.
Option B is the best answer. The power of sale will have arisen and become exercisable as the legal date of redemption will have passed and the woman is now over two months in arrears. The building society can sell the property to recover the monies owed to it.
Options A and C are not the best answers as there are no tenants in the property to take any rental income from.
Option D is not the best answer as orders for foreclosure are relatively rare, due to the prolonged court action that is typically required.
Option E is not the best answer as the woman is in financial difficulty and so is unlikely to be in a position to pay the arrears.
A company purchases a freehold property with the aid of a loan from a bank. The bank secures their loan by way of a charge over the property. The loan is created by a document that is referred to as a deed and is signed, witnessed and delivered by both parties.
Which of the following best describes the interest of the Bank?
Single correct
Option a: The bank has a mortgage over the property. It is a proprietary interest, but it is equitable because mortgages are not capable of being legal.
Option b: The bank has a mortgage over the property. It is a proprietary interest and it is capable of being legal because it was created by deed.
Option c: The bank has a mortgage over the property. It is not a proprietary interest because the bank has no right to occupy the property unless the company defaults on the loan.
Option d: The bank has a lease over the property. It is a proprietary interest because the bank would have the right to take possession of the property if the company defaults on the loan.
Option e: The bank has a lease over the property. It is a legal lease because it was created by deed.
Option B is correct because a mortgage is a proprietary interest and is capable of being legal provided it was created by deed, which it was.
Option A is wrong because mortgages are capable of being legal under s1(1)(c) of the Law of Property Act 1925.
Option C is wrong because a mortgage is a proprietary interest and it is immaterial whether the bank has a right to occupy or not.
Option D is wrong because the bank does not have exclusive possession of the property.
Option E is wrong because regardless of whether it was created by deed, the bank has a mortgage, not a lease.
