Mortgages - Rights of Borrower against lender (lender rights in other section) Flashcards
What are the five things (headings to expand on) for borrower rights?
CUPIO
Collateral terms Undue influence Postponement Interest Rates and Unfair Terms Options
What is another word for borrowers’ rights and what does it mean?
Equity of redemption
It means the borrower may not be prevented from completing the mortgage repayments and eventually redeeming the mortgage. Once redeemed it means the mortgagor is to be free from the conditions of the mortgage.
What regulates interest rates and unfair terms?
Criticism?
MCOB regime and the Mortgage Credit Directive 2015
Regulation to ensure borrowers are told about term changes.
This is done at the point of sale.
Criticism: wrong stage. People are unlikely to walk away from mortgages at this point as they have probably found jobs, schools etc, so too committed.
Should legislate, not regulate.
Which two cases would you use on Options? (Borrowers’ rights)
What is the rule regarding options and mortgages?
Any term which prevents redemption will be void since it will be inconsistent with the nature of the mortgage.
So if there is an option clause in the mortgage then VOID. Would give the lender too much power since they would be able to buy at less than the market rate.
Reeve v Lisle
Option to purchase. 2 SEPARATE independent transactions (there was a 12 day interval between signing docs) - mortgage and an option. Both are binding on the purchaser or mortgagor.
So this was ok since the option was a separate contract.
Cf.
Jones v Morgan
Option to purchase was part of the mortgage, so was VOID
This was a close judgment call. The lender had too much power as could buy when they liked.
What is the rule regarding postponement? Which two cases would you use to illustrate it?
Postponement of redemption (setting a new date of redemption) will be valid provided that the mortgage as a whole is not so oppressive and unconscionable that equity would not enforce it, and provided that the postponement does not make the equitable right to redeem ILLUSORY.
Fairclough v Swan Brewery
Here was illusory. The mortgagee didn’t want the mortgage to end due to a collateral advantage term built into it. Court didn’t allow.
Knightsbridge Estates v Byrne
Postponement of 40 years. Was ok.
There must be no clog or fetter on the equitable right of redemption.
Can extend repayment term so long as not illusory.
Are collateral advantage terms enforceable? What are the 4 cases to mention? Points of law?
Petrol stations and pubs.
These are ok if not penal, not unconscionable, don’t restrict trade, and are not an impediment to the equitable right of redemption.
So they are enforceable as long as not unconscionable. Only enforceable as long as the mortgage is running. They can be enforced once the mortgage is over only if they count as a separate transaction.
Stanley v Wilde
Once a mortgage always a mortgage, wasn’t a collateral advantage term, was just a mortgage term.
Noakes v Rice
Pub. Collateral adv terms clogged the equitable right of redemption
Krelinger v New Patagonia Meat Co
Sheepskins Sep Transactions
Separate transactions (first refusal on sheepskins and a mortgage), so collateral adv was enforceable even after the mortgage had ended.
Biggs v Hoddinott
Hotel mortgaged, part of the mortgage was to buy all beer from the P.
Was held to be ok, so was enforceable for as long as the mortgage was running.
Undue influence? Two cases?
A cohabitant or coowner needs to sign a consent form. Banks have to guard against the risk of undue influence by ensuring the cohabitant signs this consent form and seeks independent legal advice (the bank isn’t responsible for the quality of this advice!)
Etridge
Need to show reasonable steps were taken to make sure the claimant appreciated the risks involved in the transaction.
Stevens v Leeder
A person has to know what they’re doing and WHY they’re doing it to genuinely consent.
Need to also establish it was to his/her “manifest disadvantage”.
Before diving into discussions about undue influence what must you discuss? 1 issue, 2 ways of achieving it, 3 cases.
Consent!
Subrogation is one form of consent. This is where the new mortgage is paying off the old mortgage.
Prestridge
A coowner may be automatically deemed to impliedly consent to the subsequent (re)mortgage of the property if agreed to the first mortgage, and the new mortgage is for a lesser or equal sum than the first, AND the new mortgage is for the same purpose as the initial mortgage.
Reason: stops people taking out mortgages to defeat the first lender’s priority. The second lender slips into the shoes of the first lender.
ALSO
before look at undue influence have to look at KNOWLEDGE
A third party (behind a trust of land) can be deemed to consent to his rights losing priority to the mortgagee’s interest where he KNOWS that the purchase of the property is being made with the aid of money borrowed on mortgage (Clayton)
Imputed intention.
Also Credit and Mercantile Bank v Wishart (Kaymuu) - this case was v generous to the lender in imputing the consent of a third party equitable owner.
If a lease has been granted by the mortgagor after the mortgage was granted, and then the lender takes possession what will happen to the lessee?
They can stay
S.99 LPA 1925 says so.
Note that this is unlikely to happen as these occurrences are usually restricted by the terms in the mortgage itself. The mortgagor is usually only allowed to grant tenancies with the mortgagee’s consent.
If a lease is granted in breach of these terms then there is no protection for lessee against the mortgagee (Emerson)
Scintilla of time. When and how is this relevant?
There is no scintilla of time between a borrower buying and a mortgagee securing. So the mortgagee gets priority straight away
Abbey National v Cann
What must you not forget about when talking about mortgages and third party rights?
Overreaching! Flegg
Also mention Halifax v Popeck (was a s.28 transfer, so equitable mortgage bound the transferee) And Boland (bank failed to look behind the curtain so lost priority to the mortgagor's wife)
If the mortgagee doesn’t have priority what could they do?
S.14 TOLATA
Make the mortgagor bankrupt. So a sale will take place, but the equitable owner will have first claim on the proceeds of sale to the value of their share.
Alliance and Leicester v Slayford.
Why is bankruptcy a risky strategy for the bank to pursue?
The bank will be placed on a par with other creditors, so no longer have priority over the property proceedings.
Alliance and Leicester v Slayford
Can a mortgagor rely on Art 8?
Probably not. The bank isn’t a public authority and can’t have a horizontal dispute.
Outline the lender’s rights
Right to possession (four maids, Schindler)
To sell property (Emerton, waring) think about duties here
To sue for debt (rudge v richens, west Brom v wilkinson)
To a point a receiver
Foreclosure
Then ask if any improper uses of remedies (Cuckurova, Meretz, coop bank v Phillips)
