mortgages mcps Flashcards
Question 1
A borrower purchased a house (‘the Property’) four years ago with the assistance of a mortgage (by deed) with a bank (‘the Bank’). The borrower has been made redundant and has not paid the last mortgage payment. The Bank want to sell the Property immediately.
Which of the following statements most accurately describes the position for the Bank?
A The buyer need only check that that the power of sale exists and has arisen.
B The Bank can exercise the power of sale as it exists, has arisen and is exercisable.
C The Bank cannot exercise the power of sale as the power of sale does not exist.
D The Bank cannot exercise the power of sale as the power is not yet exercisable.
E The buyer will take the Property subject to the mortgage in favour of the Bank.
The correct option is D.
The power of sale exists (the mortgage was made by deed) and has arisen (the mortgage was made four years ago so the legal date for redemption will have passed). Therefore, option C is wrong.
The power of sale is not exercisable as the borrower has only failed to pay one monthly payment, not two. Option B is, therefore, wrong.
Option A correctly states the legal position but does not answer the question and is, therefore, wrong.
Option E is wrong. A buyer would take free of the Bank’s mortgage upon the Bank exercising the power of sale.
Although the power of sale exists and has arisen, the power is not yet exercisable as there is not yet two months’ arrears. Option D is, therefore, correct.
Question 2
A solicitor acts for the freehold owner of a vacant office block (‘the Property’) subject to a mortgage (by deed) in favour of a bank (‘the Bank’). The owner purchased the Property five years ago on a 25-year mortgage. The owner has not paid the mortgage payments for the last two months after their tenant’s lease came to an end and the tenant vacated the Property. The Bank have told the owner that they plan to exercise their power of sale in relation to the Property. The owner wishes to oppose this as there is a downturn in the market and it is a dreadful time to sell.
Can the owner oppose the Bank in exercising its power of sale?
A Yes, because the Bank must obtain a court order for possession prior to selling the Property.
B No, because the power of sale is exercisable and the Property is not a dwelling house.
C Yes, because the owner can apply to the court to adjourn the possession proceedings.
D No, because the Bank can choose the timing of the sale but must obtain a possession order for possession.
E Yes, because the Bank’s power of sale is not exercisable until the owner is in arrears for three months.
The correct option is B.
The power of sale exists (the mortgage was created by deed), has arisen (the mortgage was created five years ago and the date for redemption should have passed) and is exercisable as the owner is in two months’ arrears of interest payments. Option E is, therefore, wrong as only two months of arrears are needed.
The Bank do not need to obtain a possession order as this is not a dwelling house and the Property is vacant. Therefore, option A is wrong.
The owner cannot apply to the court to adjourn the proceedings as (i) there are no such proceedings and (ii) the Property is not a dwelling house. Option C is, therefore, wrong.
The Bank can choose the timing of the sale but do not need to obtain a court order for possession. Option D is, therefore, wrong.
Question 3
A solicitor acts for the owner of a freehold factory block (‘the Property’) subject to a mortgage (by deed) in favour of a bank (‘the Bank’). The Property is currently vacant since the owner’s business closed. The owner has not paid the mortgage payments for six months. The Bank believe the Property is worth £350,000 and the owner owes £370,000. The Bank would like to end the mortgage.
Which of the following is the best approach for the Bank to pursue?
A Take possession immediately with a view to redirecting income from the Property to the Bank.
B Exercise the power of sale and pursue a debt action against the owner for any shortfall.
C Pursue a debt action against the owner to recover the money owed to the Bank.
D Seek an order for foreclosure to bring the mortgage to an end and vest title in the Property in the Bank.
E Appoint a receiver to demand and receive income from the Property.
Answer
The correct option is B.
Exercise of the power of sale will end the mortgage. As the value of the Property is lower than the debt, the Bank can pursue a debt action against the owner for the difference.
Taking possession, pursuing only a debt action and appointing a receiver do not end the mortgage. Therefore, options A, C and E are wrong.
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. Option D is not therefore the best answer.
A lender loans money to a borrower in return for a charge by way of legal mortgage over the borrower’s registered land. The interest rate for the loan is 10% above the Bank of England’s base rate.
Which of the following statements best sets out the circumstances in which the interest rate is most likely to be held to be unconscionable?
The land is a freehold estate, the borrower is a residential owner and has also received legal advice.
The land is a freehold estate, the borrower is a commercial owner and both lender and borrower are individuals.
The land is a leasehold estate, the borrower is a residential tenant and the loan is to pay for the extension of the leasehold term.
The land is a leasehold estate, the borrower is a commercial tenant and has also received legal advice.
The land is a freehold estate, the borrower is a residential owner and the loan is to fund the borrower’s business expansion.
The land is a leasehold estate, the borrower is a residential tenant and the loan is to pay for the extension of the leasehold term.
This is correct and the facts are akin to the case of Cityland v Dabrah (1968). As with this case, if the property is a leasehold and the borrower is a residential tenant who needs the money to extend the length of the lease, there is a risk that the lender could take advantage of the borrower’s circumstances and impose a higher interest rate. The borrower is more likely to agree to unconscionable terms to ensure the loan is made.
Five years ago, a business owner needed to borrow money to expand their business. The business owner granted a first legal mortgage over the registered freehold of their home to a bank as security for the loan. The ten year repayment mortgage was granted by deed, included an express power of sale and the legal date of redemption was set for one month after the mortgage was granted.
The mortgagor’s business has been struggling recently and they have been unable to pay the last three mortgage instalments.
Which of the following options represents the best advice to the lender in respect of enforcing the security?
The lender is not entitled to enforce the security on the facts.
The lender should appoint a receiver and initiate a debt action against the mortgagor because the power of sale has not yet arisen.
The lender should take possession through self-help, rather than applying for a court order, and then sell the property.
The lender should apply for a court order to obtain possession and then sell the property. However, the mortgagor may apply to have the possession order postponed.
The lender should apply for a court order to obtain possession and then sell the property. The mortgagor will not be able to apply to have the possession order postponed.
The lender should apply for a court order to obtain possession and then sell the property. However, the mortgagor may apply to have the possession order postponed.
This is correct and is the best answer. It is advisable for the lender to apply for an order for possession, rather than exercising self-help and it is true that the mortgagor can apply to have the possession order postponed under section 36 Administration of Justice Act 1970. The other options are less correct because possession through self-help is rarely if ever advisable with regard to residential property, the Administration of Justice Act 1970 would apply here as the mortgaged property is a dwelling, and the facts indicate that the power of sale has arisen and is exercisable (in addition to the fact that it would not make sense to appoint a receiver here).
Last year, a business owner granted to a lender a legal mortgage over the business premises to secure a capital and interest repayment loan. The mortgage deed did not mention any power of sale for the lender. The business is declining and the owner has not made any mortgage payments for four months. Today, the owner received a letter from the lender stating that the lender intends to sell the property and recover the money due from the sale proceeds.
Which of the following statements best explains whether the lender has a right to immediately sell the property?
The lender can sell the property as the legal date for redemption has passed
The lender can sell the property as the power of sale has arisen and has become exercisable on the facts
The lender cannot sell the business owner’s property as there is no express right for the lender to do so
The lender cannot sell the business owner’s property without first complying with the Pre-Action Protocol for Possession Claims 2008
The lender cannot sell the property until three months pass after the letter warning of the sale has been received
The lender can sell the property as the power of sale has arisen and has become exercisable on the facts
This is correct: if there is no express power of sale in a mortgage deed (as here) then the statutory provisions in LPA 1925 apply and s 101 will give the lender such a right in a legal mortgage.
The right has arisen as one instalment of capital became due as soon as one payment had been missed: Payne v Cardiff; and the right is exercisable as some interest has been in arrears for two months: LPA 1925, s 103(ii).
As the right has become exercisable due to the missed interest repayments, there is therefore no need for the lender to serve a 3 month written warning/notice of the sale. The legal date for redemption, which is the earliest date on which the borrower can redeem the mortgage, has nothing to do with the lender’s right to sell.
The owner of a registered freehold property, used as a venue for weddings and parties, grants a legal mortgage over the property in favour of a lender as security for a loan. The mortgage deed contains the following terms:
(i) the lender may use the property free of charge for their annual Christmas party until the end of the mortgage term; and
(ii) the lender has an option to purchase the freehold until the end of the mortgage term.
Which of the following statements is correct in respect of the validity of the mortgage terms?
Term (i) and term (ii) are both unenforceable terms and likely to be struck out by a court.
Term (i) and term (ii) are both enforceable terms and likely to be upheld by a court.
Term (i) is an unenforceable collateral advantage but term (ii) is likely to be upheld by a court.
Term (i) is an enforceable collateral advantage but term (ii) is inconsistent with the right to redeem the mortgage.
Term (i) and term (ii) are both unenforceable terms and likely to be rewritten by a court.
Term (i) is an enforceable collateral advantage but term (ii) is inconsistent with the right to redeem the mortgage.
This is correct.
Term (i) is a collateral advantage but as it expires at the end of the mortgage term and as long as it is not onerous or in the nature of a penalty, it is likely it will be upheld by the court.
Term (ii) gives the lender the option to purchase the freehold at any time during the term and is likely to be struck out as this prevents the borrower from being able to redeem their property.
q
A borrower and lender enter into a document, which is described as a ‘mortgage deed’. The document purports to grant a mortgage over the borrower’s registered legal freehold. The agreement is signed by both the borrower and lender, witnessed and then dated. The lender does not do anything further with the document.
Which of the following options best describes what kind of mortgage (if any) has been granted by the borrower?
The borrower has granted a legal mortgage because the statutory requirements of a deed have been met.
The borrower has not granted a mortgage because the document does not comply with the statutory requirements of a deed.
The borrower has granted an equitable mortgage because it is a mortgage of an equitable interest in the land.
The borrower has granted an equitable mortgage. Equity will recognise the ‘failed legal mortgage’ as a ‘contract to grant a legal mortgage’.
The borrower has not granted a mortgage because the document has not been registered.
The borrower has granted an equitable mortgage. Equity will recognise the ‘failed legal mortgage’ as a ‘contract to grant a legal mortgage’.
This is correct. Although a valid deed has been created on the facts - the document complies with LP(MP)A 1989, s 1 - it has not been registered by the lender. No valid legal mortgage has therefore been created on the facts. Equity will, however, recognise this an equitable mortgage in the circumstances. The document complies with LP(MP)A 1989, s 2 and equity will therefore recognise it as a ‘contract to grant a legal mortgage’. An equitable mortgage does not need to be registered to be validly created.
q
A couple recently bought a holiday home in the Alps. In order to fund the purchase, they borrowed money from the bank and secured the loan by granting to the bank a legal mortgage over the freehold of their home in England.
Which one of the following options best describes whether the lender would have been put on notice of possible undue influence in the circumstances?
The lender would not be put on enquiry of undue influence because the lender has taken the necessary steps to bring home the risk of the mortgage
The lender would be put on enquiry of undue influence because the couple are buying a property in a different country
The lender would not be put on enquiry of undue influence because the loan is for the joint benefit of the couple
The lender would be put on enquiry of undue influence because there is more than one borrower
The lender would not be put on enquiry of undue influence because there is no relationship of trust and confidence between the couple
The lender would not be put on enquiry of undue influence because the loan is for the joint benefit of the couple
This is correct. The lender would not be put on enquiry of undue influence because the loan is for the joint benefit of the couple. In CIBC Mortgages plc v Pitt the House of Lords confirmed that a lender would not be put on notice that there is a risk of undue influence where a transaction is ostensibly for a couple’s joint benefit, as it is on the facts here.
When does the borrower’s equitable right to redeem arise?
On the day after the legal date for redemption
On the final day of the mortgage term
On the day before the legal date for redemption
On the same day as the legal date for redemption
As soon as the mortgage deed is executed
On the day after the legal date for redemption
This is correct. Generally speaking, the legal date for redemption arises between three and six months after the mortgage is created. The equitable right to redeem arises the next day. This means that the mortgage cannot be redeemed under any circumstances for the first few months.
On what basis might a clause in a mortgage deed, which imposes an interest rate of 25% per annum, be challenged?
The interest rate may have been imposed as a result of undue influence
The interest rate cannot be challenged once the deed has been signed
The interest rate may be an unconscionable term
The interest rate may prevent the borrower from redeeming the loan
The interest rate may represent a collateral advantage to the lender
The interest rate may be an unconscionable term
This is correct. An interest rate may be amended or struck out by the court if it is imposed in a morally reprehensible way: CItyland Properties v Dabrah and Multiservice Bookbinding v Marden
The case of Kreglinger v New Patagonia Meat Storage Co looked at the circumstances in which a collateral advantage may be upheld. What is the principle from that case?
A collateral advantage will only be upheld if it extends beyond the mortgage term
A collateral advantage will be upheld only if it is a solus tie
A collateral advantage will be upheld if it is genuinely part of a separate transaction, irrespective of when it comes to an end
A collateral advantage will only be upheld if it ends within the mortgage term
A collateral advantage will never be upheld
A collateral advantage will be upheld if it is genuinely part of a separate transaction, irrespective of when it comes to an end
This is correct. If an advantage for the lender is genuinely separate from the mortgage then the question of whether it comes to an end within or beyond the mortgage term is irrelevant. Indeed, all mortgage law is irrelevant to a genuinely separate transaction.
C and D recently bought a holiday home in the Alps. In order to fund the purchase, they borrowed money from the bank and secured the loan by granting to the bank a legal mortgage over the family home in England. Which one of the following correctly explains the position regarding possible undue influence?
The lender would not be put on enquiry of undue influence because the lender has taken the necessary steps to bring home the risk of the mortgage
The lender would not be put on enquiry of undue influence because the loan is for the joint benefit of C and D
The lender would be put on enquiry of undue influence because there is more than one borrower
The lender would be put on enquiry of undue influence because C and D are buying a property in a different country
The lender would not be put on enquiry of undue influence because there is no relationship of trust and confidence between C and D
The lender would not be put on enquiry of undue influence because the loan is for the joint benefit of C and D
This is correct. The lender would not be put on enquiry of undue influence because the loan is for the joint benefit of C and D. In CIBC Mortgages plc v Pitt the House of Lords confirmed that a lender would not be put on notice that there is a risk of undue influence where a transaction is ostensibly for a couple’s joint benefit, as it is on the facts here.
Last year A and B bought a registered freehold property with the assistance of a loan secured by a 25 year capital and interest repayment mortgage. The mortgage deed contains a term which states that the legal date for redemption is the final day of the mortgage term. Last week, A inherited a large sum of money. Which of the following is the correct statement on whether A and B can redeem the mortgage now, using the inherited money?
The mortgage can be redeemed because a clause which prevents redemption will be void
The mortgage cannot be redeemed because of the principle of undue influence
The mortgage can be redeemed because A and B have an equitable right to redeem
The mortgage cannot be redeemed until the legal date of redemption arises
The mortgage cannot be redeemed because the redemption date can be postponed if the mortgaged land is freehold
The mortgage can be redeemed because a clause which prevents redemption will be void
This is correct. A and B in this scenario do not have a right to redeem until the legal date for redemption has arisen. The clause which states that the legal date for redemption is the final day of the term will effectively prevent A and B from redeeming the mortgage for 25 years. Courts will declare void clauses which aim to prevent borrowers from redeeming mortgages, as here (Toomes v Conset).
Which one of the following does not operate to reserve an easement?
Express creation of an equitable easement
Express creation of a legal easement
Common Intention of the Parties
Necessity
LPA 1925, s 62
LPA 1925, s 62
This is correct. S 62 only operates to imply an easement by way of grant.
