Mortgages Flashcards
Is a mortgage capable of being a legal interest?
Yes
How does a mortgage become a legal interest?
If made by deed and then registered
What formalities are required for a deed for a mortgage?
- document must have been intended to be a deed
- deed must be validly executed
- deed must be delivered
What happens if a deed is not registered?
Mortgage cannot take effect as legal mortgage but could still be an equitable interest
When can there be an equitable mortgage?
- when there is a mortgage of an equitable interest
- defective legal mortgage
How can an equitable mortgage over an equitable interest in the land be created?
By it being in writing and signed by the guarantor
When will a defective legal mortgage create an equitable mortgage?
Equity will recognise contract to grant a legal mortgage provided it is in writing, contains all the agreed terms and is signed by both the mortgagor and mortgagee
What happens when a mortgage has been repaid in full?
Mortgage entries in Land Registry must be removed either by DS1 form (for mortgage of whole of land) or DS3 form for mortgage of only part
What are the four elements of protection provided for by the equity of redemption?
1) Equitable right to redeem loan will extend it beyond legal right to redeem
2) Protection from clauses which postpone or prevent redemption
3) Protection from clauses which give collateral advantages to the lender
4) Protection from unconscionable terms in the mortgage
When will the courts deem a clause to prevent redemption or be a clog or fetter on equity of redemption? And when will they not?
- they will not allow redemption clauses that mean that the borrower is prevented from getting anything back of any value
- they will allow clauses whereby the borrower gets back exactly what has been mortgaged, even if it is over a long period of time and the borrower has had favourable interest rates
When will equity of redemption prevent options to purchase?
- when it is a clog on equity of redemption
- when it was granted at the same time as the transaction
When will equity of redemption not prevent options to purchase?
- when granted independently to the mortgage
- when granted on the same day but are in fact completely separate transactions
When will the equity of redemption prevent collateral advantages?
Will not be allow lenders to gain additional value beyond capital repayment and interest
Collateral advantage will be struck out if it is unconscionable, nature of a penalty or if repugnant to the equitable right to redeem
What have courts said in relation to equity of redemption, collateral advantages and solus ties?
Solus ties will be upheld in commercial transactions if they end within the mortgage term but not if they exceed the mortgage term (borrower would not be getting back what they had mortgaged)
When will equity of redemption prevent unconscionable terms?
- When the term is more than just unfair or unreasonable
- clear imbalance of bargaining powers between the parties
- where interest rate goes beyond high but wipes out any chance of surplus sale proceeds for borrower
- if imposed in a morally reprehensible manner
When will a term not be unconscionable?
- where it is just a bad bargain
- where the interest rate is just high rather then a penalty
- where high interest rate is because lender is in difficult financial circumstances
- where high interest rate is because borrower has poor credit history and are a credit risk
What is the priority rules amongst registered charges?
They rank in the order they were registered NOT created
What happens if two or more mortgages are created at the same time?
The application for registration will specify the order of priority
How do equitable mortgages rank amongst each other?
By order of creation
How does an equitable mortgage being protected by notice on charges register changes priority rules?
It will take priority over any subsequent legal mortgages as well
If it is not registered, it will take take priority over any subsequent registrable charge
How can lenders choose to alter priority rules?
By entering into a deed of priority or intercreditor deed
And registering that agreement at the land registry
What rights does an equitable mortgagee have?
- right to bring debt action under mortgage contract
- to apply for foreclosure
- to appoint a receiver
No right to possess without court order generally
What five courses of action does a legal mortgagee have open to it?
- sue for outstanding debt
- repossess the property
- sell the property
- appoint a receiver
- foreclose
When would a debt action be brought by the lender?
Will be used in addition to other remedies
Where the value of mortgaged property does not cover outstanding mortgage debt, borrower will be sued for the difference
Why will a lender want to take possession of a property?
As it allows them to sell the property with vacant possession and free from any rights of the borrower
When can a lender take possession of a residential property?
Only as a last resort
What happens if the lender exercises it right to sale?
- borrower loses all its rights in the property
- sale proceeds are applied to outstanding debts
- surplus can be forwarded on to the borrower
- borrower can be sued for any shortfall
What is a receiver in a mortgage context?
- manager of the mortgaged property and is used by lender as alternative to seeking possession where property needs management
- receiver will collect income from land before sale and will apply income to mortgage debt
- receiver is borrower’s agent and must act with due diligence
What is foreclosure?
Allows lender to take mortgaged property in satisfaction of the debt
Procedure is lengthy and complex and rarely used now.
Extinguishes all other mortgages on the property and lender’s contractual debt
When does the legal lender gain the right to possess?
As soon as the mortgage is granted
As possession is a right of the lender’s a court order is not necessary but why might it be prudent nonetheless?
May be prudent to avoid any criminal/civil actions that possession was unlawful
What should lenders do before taking possession of a residential property?
Lenders should try to discuss the debt with the borrower and accept reasonable requests for new payment plan
What is the statutory power to postpone possession by a lender?
Allows court to postpone delivery of possession for period it thinks is reasonable
Postponement may be subject to payments or other conditions that the court thinks is fit
What does the statutory power of postponement not allow?
Does not:
- enable the court to prevent the lender from exercising its right to possess altogether
- enable the court to postpone possession in cases where there has been no application for an order for possession
- enable the court to prevent a lender from exercising a power of sale without first obtaining a court order
What does the statutory power allow the court to do?
Section does:
- apply where the property is wholly or partly residential, although need not be the borrower’s home
- enable the court to - adjourn possession proceedings or stay or postpone execution of the possession order
- in order to postpone, must appear to court that borrower is likely able to pay any sums due or remedy any other default within a reasonable period
When will the court likely grant postponement?
- when borrower presents detailed financial plan showing how they can pay off loan and arrears before term expires
- when borrower is prepared to sell property themselves and sale proceeds enough to cover debt due
- where evidence of genuine offer from purchaser for property
- Must be genuine evidence of imminent sale - instructing solicitor to handle conveyance not enough
When can a legal mortgagee exercise power of sale?
Power of sale must exist, have arisen and become exercisable
No court order required
Does an equitable mortgagee have the same power of sale as legal mortgagee?
No - they will need to rely on Trusts of Land and Appointment of Trustees Act 1996
What happens if there is no express power of sale in mortgage documents?
Power of sale implied under statute unless specifically excluded or modified by mortgage deed
When does the lender’s statutory right to sale arise?
Arises when mortgage money becomes due so:
- if capital and interest repayment mortgage, power of sale arises as soon as one portion of the capital is due
- if interest only-mortgage - capital is not due until end of loan term so mortgage money becomes due on legal redemption date
What happens if lender sells when power to sell has arisen but before it is exercisable?
Sale to innocent purchaser will be valid but lender will liable in damages to the borrower
When will the lender’s statutory right to sell become exercisable?
When one of the following criteria is met:
- when notice is served by lender that payment of the whole loan is due and the borrower has defaulted
- interest is unpaid and in arrears for at least two months
- there has been a breach of some other mortgage provision like failure to insure the property or keep in good repair
What are the lender’s duties on exercising right to sell?
- duty to obtain true market value or proper price
- no duty to obtain perfect price
- duty to take expert advice as to method of sale, marketing strategy and reserve price
- lender has unfettered discretion as to when to sell and cannot be expected to delay in order to improve property or for upturn in property market
