Mortgages.

Question 1

What does a secured creditor benefit from having a security in terms of his debtor going bankrupt or insolvent?

Answer 1

A creditor benefits by having a security because if debtor goes bankrupt or insolvent then they secured creditor has priority in getting his money back.

Question 2

What is possessory security? Give the 2 examples of these types of securities.

Answer 2

That’s when the creditor only has possession of the security instead of ownership. Example: pledge, or lien.

Question 3

What are ownership securities? Give the examples of these types of securities.

Answer 3

That’s when the creditor has ownership of the security. Examples: common law mortgage, hire purchase, romalpa clause, and sale and lease back.

Question 4

What is the common law mortgage? is it still in use?

Answer 4

That’s when debtor gives creditor ownership of land in exchange of loan. No it is no longer practiced.

Question 5

What is hire-purchase?

Answer 5

A hire-purchase is when creditor bails something to debtor but retains ownership. Ownership is transferred to bailee only once the bailee pays agreed upon price.

Question 6

What is the Romalpa Clause?

Answer 6

That is when the buyer maintains possession, while the owner maintains ownership until buyer pays the debt, which then causes ownership to pass to the buyer.

Question 7

What is a sale and lease back?

Answer 7

That is when a party sells something to a buyer for money and then the buyer leases is it back. Sometimes there is an option to purchase after the party pays of its cost or a certain amount.

Question 8

How are land charges/mortgages now? How is it treated? Where is this codified?

Answer 8

Land charges or mortgages are now through encumbrance. This means debtor keeps legal estate and creditor registers the charge on the title. This is treated as a 3,000 year lease for charge over freehold, and a sub-lease for charge over leasehold estates. This is codified in the Law of Property Act 1925, s87.

Question 9

What are the 3 powers of the mortgagee?

Answer 9

1) Possession.
2) Power of sale.
3) Appoint a receiver.

Question 10

How can a mortgagee take possession of land they have possession over? When are they barred from doing so? Where is the latter codified?

Answer 10

To take possession they have to apply for a court order to do so. They are barred if 1) the house is used as a dwelling (no occupation needed), and 2) the mortgagor is well on his way to pay his debts.

Question 11

How can a mortgagee exercise his power of sale? Must they take possession first? Which case illustrates this?

Answer 11

Mortgagee can just sell. They do not have to take possession first. This is illustrated in the case of Ropaigealach v Barclays Bank plc.

Question 12

What requirements need to be fulfilled for mortgagee to exercise power of sale for both express, and implied sale?

Answer 12

For express sale it must have been expressed in the mortgage agreement and if no express provision is available then it could be implied into the document if 1) date of redemption has passed, or 2) installments for mortgage/charge are overdue.

Question 13

What happens to money from a mortgagee’s sale? Where does it go, and how is it distributed?

Answer 13

It goes into a trust and then gets distributed in this order: paying costs of sale —> discharge mortgage debt —-> pay other mortgagees if they exist —> residue (if any) to mortgagor.

Question 14

Who is a receiver? Who do they owe duties to?

Answer 14

Receiver is agent of mortgagor for the benefit of the mortgagee, but owes duties to both.

Question 15

How are receivers different in protecting the mortgagor’s rights from how mortgagee’s protect the mortgagor’s rights? Which case illustrates this?

Answer 15

Silven Properties v RBS - unlike mortgagees receivers have to take steps to protect mortgagor’s interests.

Question 16

What are the duties of mortgagees?

Answer 16

1) account.
2) act in good faith.
3) take reasonable care.

Question 17

What do mortgagees have account for?

Answer 17

1) profit of land they possess.

2) if they sell account for sale proceeds.

Question 18

What do mortgagees have to take reasonable care of?

Answer 18

1) the property/land they possess.

2) if they sell, do so at a reasonable market value.

Question 19

To whom are the mortgagees duties owed to? Are they owed to trust beneficiaries?

Answer 19

1) mortgagors.
2) Gurantors.
3) subsequent mortgagees.
but NOT to trust beneficiaries.

Question 20

This case illustrates the duty of good faith owed by the mortgagee. Give facts and held.

Answer 20

Pulk v Mortgage Services Funding - facts - P had mortgage debt which was high and he defaulted at a time where his property would put him in negative equity. He found the best market price possible to sell but mortgagee didn’t agree to the sale because he wanted to lease instead to avoid loss but the consequence would be a very high increase in debt for P. P sued. Held: because of duty of care and good faith M cannot lease house because it would prejudice the debtor.

Question 21

This case shows that a mortgagee can only order possession for the purposes of security for repayment. Other purposes are void.

Answer 21

Quennell v Maltby.

Question 22

When can undue influence or misrepresentation rescind mortgage?

Answer 22

Only when mortgagee had constructive notice.

Question 23

If wife was unduly influenced, can mortgagee still go after husband’s share? What is the consequence of this on the title of the land? Does this consequence operate in law or equit?

Answer 23

Yes he can and this causes joint tenancy title in the land to sever in equity.

Question 24

Where is it codified that the mortgagee can sell the severed joint tenancy share of the husband in equity?

Answer 24

TLATA 1996, s14.

Question 25

When is the mortgagee declared to have constructive notice of undue influence (on the wife for example), and what steps must they take to be protected from the potential of a rescinded mortgage? Which case illustrates this?

Answer 25

Mortgagee has constructive notice if joint loan is for husband’s benefit not wife’s (for example). Mortgagees can protect themselves by taking these steps: 1) wife attends private meeting with a representative of the bank which she is told of the extent of her liability as surety —> 2) warned of the risks, and —> 3) urged to take independent legal advice. In exceptional cases they must insist she does (3). This is illustrated in RBS v Etridge (No 2).