Mortgages II Flashcards
What must the party alleging they have been the victim of undue influence prove to establish undue influence?
- Relationship of influence or ascendance (irrebutable presumptions in some cases)
- Transaction which requires explanation
What must banks follow to avoid undue influence in mortgage signing?
The guidelines in RBS v Etridge:
- is there proof of undue influence?
- was the mortgagee aware of the relationship and so put on inquiry?
- if so, did the mortgagee take reasonable steps to minimise the risk of undue influence arising?
What can the existence of undue influence lead to?
The existence of undue influence could lead to the entire mortgage being set aside (it becomes unenforceable)
What is required for legal mortgages to have priority for registered land?
Legal mortgages must be registered (LRA 2002, s27(2)(f)), and priority depends on the order they are entered on the register.
What is required for puisne mortgages to have priority for unregistered land?
priority of mortgages is determined by the order in which they are registered as Class (i) Land Charge
How is priority determined for equitable mortgages?
Priority for equitable mortgages depends on the order of creation (LRA 2002, s 28).
How can equitable mortgages over registered land be protected?
Equitable mortgages can be protected by entering a notice on the charges register, which gives them priority over subsequent legal mortgages (LRA 2002, s 29(1)).
What effect does entering a notice on the charges register have over equitable mortgages?
This does not affect the priority between equitable mortgages - this will always be determined by creation
What can lenders do to alter priority rules?
Lenders can agree to alter the priority rules order by entering into a deed of priority.
What rights do equitable mortgagees have?
Equitable mortgagees do not generally have the right to repossess or sell without a court order but can bring debt action, apply for foreclosure, and appoint receivers.
What is the limitation period for debt recovery?
The limitation period for recovery of the debt is 12 years, and for recovery of interest, it is 6 years.
When is debt action most commonly used?
When there is a negative equity
What must lenders do before seeking possession?
Lenders must follow the Pre-Action Protocol 2008, which includes discussing debt with the borrower and accepting reasonable requests for a new payment plan.
What are the lender’s rights in the event of default on a mortgage?
- Debt action
- possession - first step in selling the property with vacant possession
- sale
What happens to the proceeds from sale?
The lender is the trustee of any surplus proceeds and must hand them to the preson next entitled:
- surplus goes to the borrower
- the sum must repay prior mortgages and costs/solicitors’ fees before the lender can satisfy their own mortgage
What are the procedural steps to sale?
- has the power of sale arisen?
- Has the power of sale become exercisable?
- Duties on sale
What is the role of a receiver?
A receiver is an administrator whose function is to generate income from the land to pay off the mortgage. They are the borrower’s agent so the lender is not liabile for the receiver’s negligence
What does foreclosure allow a lender to do?
Foreclosure allows a lender to take the mortgaged property in satisfaction of the debt, resulting in the borrower losing all rights to the property - rare now
When does the lender’s right to possess arise?
The right to possess arises as soon as the mortgage is granted but is often postponed as long as the borrower pays the agreed instalments.
What does the Criminal Law Act 1977, s 6 state?
It makes it a criminal offence to use or threaten violence to gain entry to property.
What are the limitations on the right to possession?
- s6 Criminal Law Act 1977
- Pre-action protocol for possession claims
- s36 AJA 1970
What can the court do under the Administration of Justice Act (AJA) 1970, s 36?
The court can adjourn possession proceedings if it appears the borrower can pay arrears within a reasonable period.
When does s36 AJA apply
to residential properties only (wholly or partly)
What is the lender’s right to sell?
Most mortgage documents include an express power of sale, which details how and when the power will be exercised.
What is the position if there is no express power to sell in the mortgage document?
the power to sell is implied in under LPA, unless excluded or modified in the mortgage deed.
When does the right to sell arise?
When the mortgage money becomes due (i.e the capital)
When can the lender’s power to sell be exercised?
In the circumstances expressly stated in the document, or if one of the following is satisfied:
1. Notice requiring payment of the whole loan has been served by the lender and the borrower has defaulted –> no arrears necessary, he lender can request the full loan at any time
2. Interest is unpaid and arrears for at least two months (this does not mean two months interest)
3. There has been some breach of another mortgage provision such as a covenant to keep the mortgaged property insured or in good repair
What duties does a lender have while selling?
The lender must:
- balance its interests with those of the borrower,
- take reasonable care to obtain true market value
- take expert advice
they have unfettered discretion as to when to sell.
