Mortgages - SQE Short Notes

Question 1

When is a Mortgage Legal?

Answer 1

A Mortgage is Legal When Created by Deed

Question 2

Who is the Mortgagee and who is the Mortgagor?

Answer 2

Mortgagor - Is the person borrowing, who will grant a mortgage charge over their property to the lender

Mortgagee - Is the Lender, who lends the money and in return obtains a proprietary interest in the property

Question 3

What is a mortgage?

Answer 3

A mortgage gives the lender a proprietary interest

The Borrower is the Owner of the property, and the Lender has a legal interest in the property (there is no trust / co -ownership arrangement.

Question 4

What is the Power of Sale? What three things must arise?

Answer 4

The Power of Sale allows for the Lender to end the mortgage and sell the property. The Power must have:

1. Exisit

(Implied when legal mortgage / created by deed, or expressly stated in terms)

2. Arrise -

Once the redemption period has passed (which is when the first payment is due, normally after 1 month)

3. Be Exersisable,
   By 1 of 3:

a- 2 month areas
b. Breach of Mortgage term (other than to repay)
c. Lender has notified borrower to repay, and payment not made within 3 months

Question 5

Does the lender need the other lenders permission, or a Court order, to exercise the power of sale?

Answer 5

No

Permision nor Court Order is not needed

Question 6

What is the best action to take if the buyer wishes to sell the property, but the value wont cover the whole mortgage?

Answer 6

If the property is now worth less than the mortgage, best thing to do is to exercise the power of sale and then pursue a debt action for the remaining amount

Question 7

If there are 2 Mortgages registered against 1 property, which mortgage takes priority of the proceeds of sale?

Answer 7

Legal mortgages are prioritized based on the order in which they are registered on the title, not when they were created by deed.

While any mortgagee can exercise their power of sale, the proceeds must first be used to discharge the mortgage that was registered first.

		§ For example, if Mortgage 1 was created first but Mortgage 2 was registered earlier, Mortgage 2 will take priority. In this case, Mortgage 1 can only receive proceeds after the full amount of Mortgage 2 has been discharged.

If Mortgage 2 (The first registered mortgage) exercises its power of sale, it does not need to give consideration to Mortgage 2 (the second registered Mortgage)

Question 8

If there are 2 mortgages, and the second registered mortgage exercises the power of sale, when are the lender who exercised sale costs paid?

Answer 8

Sale Costs will always be paid before the discharge of the Lender who exercised the Sale.

		§ For Example, Mortgage 1 was created and registered first, then Mortgage 2 was created and Registered. 
		
		§ If Mortgage 2 Exercises their power of sale, this is how the proceeds must be used: 
		
			1. Discharge Mortgage 1 
			2. Discharge Lenders 2 Sale Costs 
			3. Discharge Mortgage 2  4. Any Proceeds to the seller

Question 9

When exercising the power of sale, do the lenders have to sell the property subject to the lease?

Answer 9

When exercising the power of sale, the property must be sold subject to the lease.

If the lease is 7 years or under , it will be an overriding interest (ie does not need to be binding to be registered)

Question 10

What are the 5 remedies for non payment of an legal lease?

Answer 10

1. Forclosure
2. Taking Possesion
3. Appoining a Reciever
4. Debt Action
5. Power of Sale

Question 11

What is forclosure?

Answer 11

○ Effect: Ends the mortgage entirely.

	○ Consequence: The lender gains ownership of the property but loses the ability to recover any shortfall if the property’s value is less than the outstanding loan.

Why it’s not ideal: It extinguishes the mortgage, leaving the lender without further remedies.

Question 12

What is Taking Possession?

Answer 12

○ Effect: The lender takes control of the property, and the borrower loses the right to remain in occupation.

	○ Consequence: The lender can manage or sell the property to recover the loan but displaces the borrower.

Why it’s not ideal: It conflicts with the lender’s wish for the borrower to remain in occupation.

Question 13

What is Appoining a Recivever?

Answer 13

○ Effect: A receiver manages the property and collects income on behalf of the lender.

	○ Consequence: The borrower retains the property but loses the right to any income generated.
	
	○ Why it's not ideal: It prevents the borrower from benefiting from any income the property produces.

Question 14

What is Debt Action?

Answer 14

○ Effect: The lender sues the borrower to recover the outstanding loan.

	○ Consequence: The mortgage remains in place, and the borrower can continue to occupy the property.

Why it’s the best option: It satisfies the lender’s wish to keep the mortgage in existence while allowing the borrower to remain in possession.

Question 15

There must be 3 things to exersie the power of sale. It must have ‘exsisted’, ‘arisen’, and be ‘exersisable’ - what is each one

Answer 15

1. Exsisted - Must expressly be stated to exist, or will be implied when made by deed / a legal mortgage
2. Arrisen - The redemption period must have passed, which is after the first mortgage payment is due (usually 1 month)
3. Be Exersisable - 2 Months of Arrears or Breach of mortgage term other than payment, or notice for payment and 3 months not paid