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LAND > Mortgages > Flashcards

Mortgages Flashcards

1
Q

What is a mortgage?

A
  • A mortgage can be defined as a loan of cash, which is secured by rights granted over property.
  • These rights include the right to possess and sell the land in the event of default in the mortgage repayments.
  • It is the borrower that grants the mortgage, not the lender.
  • The lender makes money by charging interest on the amount borrowed. This is expressed as a percentage of the amount lent.
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2
Q

Who is the mortgagee and mortgagor?

A
  • The lender (often a bank) is the mortgagee who loans money to fund the property purchase
  • The borrower (an individual or company) is the mortgagor who grants rights over the property as security for the loan.
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3
Q

What is the interest rate?

A

The interest rate is the cost of debt for the borrower and the rate of return for the lender.

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4
Q

What are the types of mortgages?

A
  • Capital Repayment
  • Endowment
  • Pension
  • Interest –only
  • Sharia –compliant
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5
Q

How does a capital repayment mortgage work?

A

With repayment mortgages, each month you repay some of the interest you owe plus some of the money (capital) borrowed. At the end of the period the borrower will have paid back everything they owe and will own their home outright.

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6
Q

How does an interest-only repayment mortgage work?

A
  • the borrower only pays the interest due each month and will need to repay the capital (ie the total amount of money borrowed) at the end
  • lenders can insist the borrower shows them how they intend repaying the loan at the end (eg out of an existing pension fund).
  • The big advantage of interest only mortgages is that the monthly repayments are lower than with any other mortgage because the borrower is only paying the interest due and none of the capital.
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7
Q

How does an endowment mortgage work?

A
  • The mortgage is linked to a life assurance policy (an endowment policy) that matures at the end of the mortgage term.
  • During the mortgage term, the borrower pays interest only on the loan, plus monthly premiums on the endowment policy.
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8
Q

How does a pension mortgage work?

A
  • Pension mortgagesare also an interest only mortgage with the repayment coming from the lump sum from the pension at retirement.
  • Unlike an endowment policy, the contributions to the pension policy are tax deductible, which is attractive for higher rate tax payers.
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9
Q

How does a sharia-compliant mortgage work?

A
  • Islamic law – known as Sharia – forbids Muslims from paying interest.
  • Specialist Muslim lenders offerSharia-compliantalternatives, which often involve the lender initially buying the property and then selling it on to the purchaser as an increased price.
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10
Q

What is the only way a loan of registered land can be secured?

A

LRA 2002:

the legal charge set out in s87 LPA 1925 is the only way that loans can be secured

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11
Q

Can a registered owner mortgage land by way of lease of sublease?

A

No! (s23(1)(a) LRA 2002)

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12
Q

What are the formalities to comply with for a legal mortgage?

A

Deed ((s52) LPA 1925) + Registration (s27(2)(f) LRA 2002)

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13
Q

How can an equitable mortgage be found?

A
  1. Mortgages of equitable interest (Where the borrower holds an equitable interest in the land (ie they are not a legal owner, eg a beneficiary under a trust), any mortgage of that interest will be equitable in nature)
  2. Defective legal mortgage (A mortgage over registered land which is not granted by a valid deed or that is not completed by registration will not take effect as a legal mortgage)
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14
Q

What are the formalities to comply with for a mortgage of equitable interest?

A
  • Can be created very informally.

- s53(1)(C ) LPA 1925 - only needs to be in writing and signed by the grantor in order to be validly created.

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15
Q

What are the formalities to comply with for a defective legal mortgage to be a valid equitable mortgage?

A
  • complies withs2 LP(MP)A 1989.
  • Equity will recognise it as a‘contract to grant a legal mortgage’ providing it is in writing, contains all the agreed terms and is signed by both the mortgagor and mortgagee.
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16
Q

How do you discharge a mortgage?

A
  • Once a mortgage has been repaid in full, the mortgage entries at the Land registry must be cancelled.
  • A mortgage is only considered to be fully discharged when all reference to it has been removed from the Charges Register at the Land Registry.
  • Discharge of a registered charge is done by using a DS1/DS3 form
17
Q

What is the legal date of redemption?

A

A date specified on which the borrower has to repay the loan in full

18
Q

What is the equitable right to redeem?

A

Allows the borrower to repay the loan at any time after the legal date for redemption has passed

19
Q

What are the rights that make up the equity of redemption?

A
  1. Equitable right to redeem supplements legal right to redeem
  2. No postponement or prevention of redemption
  3. No collateral advantages
  4. No unconscionable terms
20
Q

How will equity protect a postponement of the right to redeem?

A
  • It is in the lender’s interest to keep the borrower ‘on the hook’ for as long as possible. One way of doing this is to push back the legal date for redemption as far as possible
  • Courts look at clauses which postpone the legal date for redemption very closely and will not allow a clause which prevents redemption altogether:Toomes v Conset.
  • They may allow a lender to postpone the date, but there must be no clog or fetter on the equity of redemption.
  • Whether the right to redeem is rendered valueless is a question of fact and degree.
21
Q

When does the equitable right to redeem arise?

A

The day after the legal date for redemption

22
Q

How would postponement of the right to redeem be different in a leasehold case compared to freehold?

A
  • A leasehold estate that was mortgaged is a depreciating asset. This means the borrower would not get back exactly what they had mortgaged on redemption.
  • Unlike leaseholds, freehold estates rarely lose value. So likely that the postponement is unlikely to impact the value of the property.
23
Q

What is an option to purchase?

A
  • a mortgage may include an option for the lender to purchase the mortgaged property.
  • Such terms may be declared void as preventing the exercise of the equitable right to redeem.
  • If the lender has the opportunity to buy the property, the borrower inevitably loses the right to take the property back free of the loan, which is fundamental to the nature of a mortgage as security. This is a ‘clog’ on the equity of redemption, and equity will strike such terms down, especially in domestic cases.
24
Q

When will an option to purchase be invalid?

A

An option granted at the same time as the mortgage will normally be declared invalid: Samuel v Jarrah Timber and Wood Paving Corporation Ltd

25
Q

When may an option to purchase be granted?

A

if it is granted in a subsequent independent transaction it may be upheld: Reeve v Lisle

26
Q

What is a collateral advantage?

A
  • Lenders are entitled only to the repayment of capital advanced plus interest.
  • If a lender tries to extract additional value from the borrower, the offending term in the mortgage deed may be struck out as being contrary to the equity of redemption.
  • The mortgage is not to be regarded as an opportunity to take anything from the borrower other than the repayment of money.
27
Q

When will a collateral advantage be struck out?

A

A collateral advantage will be struck out if it is unconscionable, in the nature of a penalty, or if it is repugnant to the equitable right to redeem.

28
Q

What is a solus tie?

A
  • an example of a commercial collateral advantage
  • often seen when lenders are breweries or oil companies
  • The lender makes it a condition of the mortgage that the borrower buys all its supplies from the lender.
  • For example, if a borrower borrows from a brewery to fund a pub purchase, the lender will impose a solus tie in the mortgage conditions obliging the borrower to buys all beers, wines and spirits from the lender. The interest rate may well be lower than in a deal which does not involve the solus tie.
29
Q

In what circumstances are solus ties upheld?

A
  • solus ties are upheld if they end within the mortgage term.
  • Ties which last beyond the mortgage may be upheld if they are truly independent of the mortgage transaction:Krelinger v New Patagonia Meat & Cold Storage Co Ltd
30
Q

What is the equitable jurisdiction to deal with unconscionable terms?

A
  • Courts have equitable jurisdiction to strike out oppressive and unconscionable terms.
  • For courts to interfere, the term in question must be more than simply ‘unfair’ or ‘unreasonable’. Not surprisingly, it is high interest rates which have attracted most attention.
31
Q

What is the statutory regulations to deal with unconscionable terms?

A
  • Statutory supervision is now carried out by the Financial Conduct Authority using rules in its FCA Handbook.
32
Q

What is the test on whether an interest rate is unconscionable?

A

Has it been imposed in a morally reprehensible manner? Consider the circumstances in which term was imposed

LAND (20 decks)

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