Mortgages

Question 1

What does a secured loan over a property give the lender?

Answer 1

Proprietorship over the property. The lender owns the property (even though the borrower/ lendee has legal title to the property) and can take possession and sell it if there is a default in payment.

LENDER GETS LEGAL INTEREST.
BORROWER HAS LEGAL TITLE.

Question 2

What right does an unsecured lender have over a property if the lendees default on payment?

Answer 2

Unsecured lenders must seek contractual breach remedies.

Question 3

What is a mortgage?

Answer 3

A type of legal charge. a mortgage is a proprietary interest and is capable of being legal provided it was created by deed, which it was.

Question 4

What must one do with the mortgage?

Answer 4

Must be registered on the deed and title.

Question 5

What is the equitable right to redeem?

Answer 5

Lendee/ borrower owns the property but they must also be able to pay back the mortgage to free up the land of debt

Question 6

What must the contract terms of the mortgage be like?

Answer 6

Should not excessively disadvantage the borrower.

The only terms should be what the amount being borrowed is and what the interest rate is (any crazy interest rates will be struck off by the court as it is unconscionable).

Also lender cannot buy the house from borrower.

Question 7

What happens if a mortgage is signed by borrower as a result of undue influence (such as from a spouse)?

Answer 7

The mortgage is voidable.
Also bank cannot take possession of the house in the instance of a default - because the bank may be aware of the undue influence, such as actual awareness or a constructive one (where the relationship between the borrowers are one of trust and confidence and something does not feel right (such as entering into a mortgage for the other spouse’s sole benefit)

Question 8

What can the bank do when they spot the possibility of undue influence?

Answer 8

Get the borrower independant legal advice, away from the presence of the other partner. Get written confirmantion from solicitor that this has been done.

Question 9

What can a lender do if borrower defaults on the payments?

Answer 9

1. Sue for a breach of contract
2. Right to take possession
3. Right to sale (as per mortgage deed or as arises through LPA 1925)
4. Foreclosure
5. Right to possess title deeds
6. Appointment of receiver

Question 10

What should lender do when taking possession?

Answer 10

Act in good faith.
Take reasonable care of property.
Allow court to postpone the taking of possession if borrower agrees to pay arrears before the end of mortgage term.

Question 11

When does the right of sale come about (aka when is LPA 1925 satisfied)?

Answer 11

1. When the mortgage repayment has been defaulted and notice has been sent and 3 months have passed.
2. When interest has not been paid for 2 months
3. When the borrower has breached another term in the contract.

Question 12

For the right of sale, when is the LPA 1925 used to see if lender can sell property?

Answer 12

When the mortgage deed does not offer any other solutions.

Question 13

When selling property what must lender do?

Answer 13

Act in good faith.
Take reasonable care of property.
Sell at true market value.

Question 14

What happens when a mortgage is not registered?

Answer 14

It becomes an equitable mortgage - this has less remedies available for the lender if borrower defaults

Question 15

IF there are several legal mortgages over the same property, how are they ordered according to priority?

Answer 15

From the date of registration.

NOT FROM THE DATE OF CREATION.

Question 16

When will an equitable mortgage take priority over a legal mortgage?

Answer 16

When the equitable mortgage is an overriding interest.
And in unregistered land, it must be registered in the Land Charges register to be valid and binding.

Question 17

What is the order of priority amongst multiple equitable mortgages?

Answer 17

Contrary to legal mortgages, it is in order of the date of creation.

In registered land, legal mortgages come first and then equitable mortgages. Unless there is a pre-existing equitable mortgage that has been noted down in the Land Charges Register

Question 18

When the land is unregistered, what happens when a legal mortgage is made over it?

Answer 18

It will trigger first registration of the land. This will awaken any pre-existing equitable mortgages that hang over this property,if they have been registered via Land Charges Register.

Question 19

What happens to an equitable mortgage that has not been registered?

Answer 19

It is void against a purchaser for value of the land and void against any subsequent legal mortgage.

Question 20

Where there is a deed (and therefore the power of sale), the Bank can order the sale of the property to recover money for itself after the period of…

Answer 20

2 months of missed mortgage repayments.

Question 21

If a bank wanted to do a foreclosure, what will this do?

Answer 21

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.
Foreclosure requires 2 court orders to be made.

Question 22

What remedies do not end a mortgage?

Answer 22

Taking possession, pursuing only a debt action and appointing a receiver do not end the mortgage.

Question 23

If a woman takes out a mortgage to finance the purchase of a house and she registers the mortgage in the Land Registry, who owns what?

Answer 23

The woman owns the legal estate and the building society has a legal interest in the property.

Question 24

Where are mortgages put when they are registered?

Answer 24

The Charges Register of a registered title contains notices of any third-party rights registered against the title which burden the land. This will include legal mortgages.

Question 25

Is a possession order needed before bank can sell house?

Answer 25

No. Can just sell it.

Question 26

Power of sale used when?

Answer 26

1.Mortgage behind by 2 months
2.The property is not a dwelling house (but also okay to sell even if this is happening).

Question 27

Mortgages are relevant according to when it is registered, no matter when they were created. Who can sell the property free of the other’s interest in the property?

Answer 27

The first registered mortgage.

But if the 2nd registered mortgage is not being paid off, that lender can sell the property (if 2 months have passed) but will need to pay off the 1st registered mortgage, before paying off its own mortgage.

Question 28

What does the remedy of ‘appointing a receiver’ mean?

Answer 28

That the borrower would no longer receive an income from the property. Taking the rent money from the landlord, for example.

Question 29

What is the remedy of ‘debt action’ in mortgages?

Answer 29

NEED TO CLARIFY - but it means that borrower maintains possession and the mortgage continues.

Question 30

When is a lease an overriding interest (aka taking priorty over the mortgages)?

Answer 30

When it is less than 7 years.

When a lease is more than 7 years, it needs to be registered in order for it to be overriding.

Question 31

IF a deed did not have the power of sale clause, does the law imply its existence anyway?

Answer 31

Yes. You do not need to have a power of sale clause - the law will imply it and the bank can sell the property.

Question 32

When there are 2 mortgages and the last mortgage is not being repaid and more than 2 months have passed, in what order are they paid when the property is forcibly sold?

Answer 32

1. The 1st registered mortgage
2. The 2nd mortgagor’s legal fees etc to sell the property
3. The 2nd registered mortgage
4. Any surplus to the borrower of the loan/ owner of the property