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Property Law II > Mortgages > Flashcards

Mortgages Flashcards

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1
Q

Definition

A

A transaction where land/chattels are given security for the payment of a debt or the discharge of some other obligation (Santley v Wilde 1899 Lindley LJ).
Gives rights to both contractual and proprietary interests

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2
Q

Annual Percentage Rate (APR)?

A

6% - Amount borrowed is determined by income and value of the house.

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3
Q

why are they cheaper?

A

Mortgage is a secured loan – lender receives the legal interest on the house (e.g. A and B are legal owners, subject the lenders legal interest.

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4
Q

what happens when a borrower creates a mortgage?

A

Borrower = registered proprietary owner. Lender = legal interest.

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5
Q

what is the equitable interest?

A

each party’s share in the value of the property

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6
Q

s.1(2)(c) LPA?

A

Charge by way of legal mortgage – legal interest if formalities have been met (by deed – s.52 LPA 1925).

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7
Q

Registerable?

A

s.27(f) LRA 2002 – if not registered, it will only take effect in equity

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8
Q

What are the borrower’s rights?

A

Equity of redemption = rights to redeem mortgage – right to pay it off, borrower is entitled to any excess funds resulting from the sale of the property by the lender an the lender must account for sale proceeds (record of money from the sale).

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9
Q

Types of mortgage?

A

Simple repayment - monthly investment plus interest

Interest only: Monthly payments to cover the interest. Borrower invest elsewhere to raise money to repay the mortgage. Take out borrower policy (life insurance) to pay into, this should produce enough money what is still owed to the lender.

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10
Q

What might happen during the mortgage term?

A

House prices rise: Sam and pat will own the greater share of the value. House prices fall: a smaller share of the value - Negative equity in a mortgage occurs when the outstanding balance of the mortgage loan is greater than the market value of the property. Decide to sell: they will need to repay the mortgage from the sale proceeds (bank want to paid off imminently).

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11
Q

How much can be borrowed?

A

Historically – 3x income. Then – went to 4x more – led to 110% borrowing – led to the 2008 economic crisis.

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12
Q

if mortgages aren’t paid…

A

They are secured loans, meaning if they fall into arrears (fail to pay debt) that what they owe will increase and the lender’s interest in value will increase. If they cannot repay the loan the lender can sell the house to pay off the loan instead

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13
Q

equitable mortgages - how are they created…

A

Made through an agreement that grants the lender an interest in the property as social security for a loan. Used when mortgage formalities are not met, yet there is clear intention to make one.

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14
Q

Remedies of Mortgages - redemption date?

A

Final date a borrower can repay the mortgage loan to avoid foreclosure/sale. Usually 1-6 months after the date of creation. Lender cannot redeem before them/seek full repayment.

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15
Q

what is the right to deem?

A

Right of the borrower to reclaim their property once the debt secured by the mortgage is fully paid off – right to pay off mortgage in full and strike out certain clauses from the mortgage agreement

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16
Q

what happens after the redemption date?

A

The mortgagor has an equitable right to redeem: the continuing right to redeem unless and until the whole of equity of redemption is extinguished

Refers to a borrower’s ongoing ability to pay off their mortgage debt and reclaim full ownership of their property until certain legal or contractual events terminate this right (e.g. power of sale).

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17
Q

What are the remedies available?

A

Personal remedy, foreclose, possession, power of sale, appointing of receiver.

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18
Q

what is possession?

A

When the borrower refuses to leave/sell. Lender is allowed to repossess without court order. Court can postpone this if borrower convinces that they can repay in a reasonable amount of time (s.36 AJA 1970).

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19
Q

What are the implications of needing no court order to carry out a right to possess a property by a lender?

A

Possible issues with HRA?
Horsham Properties v Clark – argues it is within HRA provisions

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20
Q

what is the personal remedy?

A

Suing on the covenant to repay: Contract on the deed, with a clause where the mortgagor promises to prepay with interest. This is a breach of contract, meaning the lender can sue for their money.

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21
Q

what is the issue with the personal remedy?

A

Borrower probably does not have the money to sue for. Usually used in conjunction with other remedies because of this issue

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22
Q

what is foreclosure (+provision)?

A

s.88(2) LPA 1925. It is very rarely used today. Gives them one last chance to pay their debt. Usually they cannot raise the money, this means that the entire property passes to the mortgagee; they become the legal owner.

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23
Q

what is lost in foreclosure?

A

Lose equitable interest as well. Borrower can request the order for sale instead – allows them to keep the excess (s.91 LPA).

24
Q

what is possession? (+provision)

A

when the borrower refuses to leave/sell. Lender is allowed to repossess without court order. Court can postpone this if borrower convinces that they can repay in a reasonable amount of time (s.36 AJA 1970).

25
Q

what is the power of sale?

A

Sold to repay debt and surplus goes to the borrower. If debt is not fully paid through sale, personal covenant is used to repay the outstanding sums

26
Q

what is appointing a receiver?

A

Exercised in the same circumstances as power of sale (s.109 LPA) but only used of tenanted properties. Appoint a receiver who administers the property and bypasses the landlord, whilst solving the problem. Used when there is income to pay off the mortgage (rental payments).

27
Q

When is the power of sale included in the mortgage?

A

When it satisfies the 3 requirements set out in s.101 LPA…
There is no contrary intention (opt out provision)
Must be made by deed
Mortgage must be due (passed redemption date).

28
Q

when can the lender sell (exercisable)?

A

One must be satisfied - s.103 LPA:
Lender served notice on borrower requiring payment of the mortgage money, and borrower has defaulted for 3 months.

Some interest is at least 2 months on arrears (2 monthly payments missed) - this makes it easy to become exercisable.

Breach of some other provision of the mortgage.

29
Q

What if someone is buying from the lender?

A

Borrower is still registered proprietor. Lender is selling as a ‘mortgagee in possession

30
Q

what does the buyer need to do/not do to get a good title from the lender?

A
  • Act in good faith
  • Check power of sale has arisen

Don’t have to enquire in arrears/check whether PoS has become exercisable.

31
Q

What are the lender duties in exercising a power of sale?

A

Kennedy v De Trafford:
CAn’t act recklessly e.g. fraud
Take reasonable care - duty to try to obtain the true market value (Silven Properties v RBS)

32
Q

Who is owed these duties by the lender duering the PoS?

A

Parker-Tweedale v Dunbar Bank
Borrower
Guarantors of Borrower
Other lenders

33
Q

who is not owed duties by the lender exercising the power of sale?

A

The beneficiary under a trust of which the borrower is the trustee.

34
Q

what is the remedy for a breach by lender, exercising the power of sale?

A

Cash settlement to receive the difference between what the property was sold for, and what it would have been sold for, had reasonable care been taken by the lender.

35
Q

what is order for account?

A

Aggrieved party can seek a court order, requiring the party who breached their duty to provide a comprehensive and detailed financial statement of the mortgage account (all payments received, who payments were applied, charges and fees applied).

36
Q

Case concerning the duties of lenders in possession when selling a mortgage.

A

Silven Properties v RBS

37
Q

Price of sale…

A

Cuckmere Birck v Mutual Finance: Lenders do not have a duty to acquire the best price/true market value. The duty is to take proper care and try to obtain best price. They are not the trustee for the power of sale, they only have to comply with these duties.

38
Q

what must lender do/not do, in relation to the price of the sale?

A

Lender must describe the property accurately (Cuckmere Birck – they did not describe it properly and didn’t refer to a planning permission, meaning the property was worth a lot more than they described).

No requirement to improve the property (Silven).

39
Q

Mode of the sale (how is the property sold)?

A

Lender can choose to auction the property or have a private arrangement. Auction = common because they guarantee quick completion date.

Predeth v Castle Phillips
Struggles v Lloyds
Bishop v Blake

40
Q

Appointing experts?

A

Can do this but cannot delegate the duty of care – if a valuer makes an error, this will still cause a breach of the lender’s duty of care (Raja v Austin Grey).

41
Q

Time of sale?

A

They do not have to wait – can sell even when the market is ‘depressed’. Contested in Bank v Walker – should not be selling at the worst possible time. This was not followed in China v South Sea Bank v Tan and Silven Properties v RBS.

42
Q

Who can’t they sell to?

A

Cannot sell to themselves or anyone they have delegated power to. Can be void if sold to someone related to the lender (Tse Kwong Lam v Wong Chit Sen). Onus on the lender to show that the interests of the borrower have been put before the relative.

43
Q

Who is the burden of proof on (best price)?

A

On lender to show all reasonable steps to obtain the best price have been made.

44
Q

Where can the application of the proceeds of a sale be found?

A

s.5 105 LPA 1925

45
Q

What is the order of the application of the proceeds of the sale?

A

Discharge of prior incumbrances: Other previous mortgages on the property.

Costs and expenses of the lender: E.g., solicitors.

Payment of the mortgage: For themselves.

Residue to “person entitled to the mortgaged property”: Subsequent mortgage or, if there’s none, to the borrower.

46
Q

What was held in Buhr v Barclays Bank

A

when the mortgagor sells the property to discharge the first mortgage, the interests of subsequent mortgagees in the balance of the proceeds of sale are also proprietar

47
Q

what does s.104 do?

A

sale is made subject to prior mortgages but free of subsequent ones. If you’re the first lender, you do not have to inform subsequent ones.

48
Q

what does s.105 do?

A

Surplus sale proceeds paid to them if they are the first lender (s.105)

49
Q

What doe subsequent lenders have to do before a sale?

A

get consent from prior mortgagees before sale. Need the consent of the first, they can say they consent as long as there are sufficient sale proceeds that can pay them off first.

50
Q

General rule in relation to the rights of the borrower?

A

Lender has the right to exercise the power of sale (once exercisable) subject to two duties.

51
Q

Exception to the general rule (rights of the borrower)?

A

s.91(2) LPA: Court can order sale of the property for either party even if someone disagrees. E.g. the lender is taking too long and the borrower needs to sell to help them financially.

52
Q

Why is the exception to the general rule allowed?

A

Delaying by the lender leads to increasing arrears (debt unpaid) and the interest will be added to the total sum owed by borrower – not fair.

Plak v Mortgage Services – This case featured a negative equity of 75,000. Borrower requested order of sale. Held – lender’s delay was unreasonable – cannot speculate on house price increase when the debt is getting worse. Borrowers were allowed to sell themselves.

Affirmed – Barret v Halifax

53
Q

Can the borrower slow down/stop the sale?

A

Objects to sale” - If the borrower is waiting for better market conditions, lender can seek an order for possession.

s.36 Administration of Justice Act 1970 – Courts can suspend/postpone if the borrower is likely to repay within a reasonable period.

Applies only to ‘dwelling houses’ - lived in residential buildings

54
Q

Application of stopping the sale?

A

Won’t do this if there is little chance of paying – First National Bank v Syed

Bristol & West v Dace – would have taken 98 years to pay off arrears

Can use this to allow borrower’s the time to sell it themselves - Target Home Loans v Clothier.

55
Q

what can the lender still have control after, following objects to sale?

A

Lender can use their discretion to choose how the property should be sold (private or auction).

Property Law II (2 decks)

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