Rights of the Lender Flashcards
What is the main purpose of a mortgage for a lender?
A) To allow borrowers to secure long-term housing
B) To allow lenders to automatically take ownership of a property
C) To ensure borrowers cannot sell their property without permission
D) To give lenders a security interest in the property if the borrower defaults
D) To give lenders a security interest in the property if the borrower defaults
Explanation:
A mortgage secures a loan against a property, ensuring that if the borrower defaults, the lender can recover its money through enforcement rights.
Which type of mortgagee has greater enforcement rights?
A) Legal mortgagee
B) Equitable mortgagee
C) Both have the same rights
D) Neither has enforcement rights without a court order
A) Legal mortgagee
Explanation:
A legal mortgagee can enforce all remedies (possession, sale, receivership, foreclosure) without needing a court order, unlike an equitable mortgagee.
A lender sells a repossessed property, but the proceeds do not cover the full mortgage debt. What can the lender do?
A) Pursue a debt action against the borrower for the shortfall
B) Apply for a foreclosure order
C) Repossess another property owned by the borrower
D) Write off the remaining debt
A) Pursue a debt action against the borrower for the shortfall
Explanation:
If a sale does not cover the full debt, the lender can sue the borrower personally for the remaining balance, subject to limitation periods.
What legal development has restricted lenders from automatically taking possession of a residential property?
A) The Human Rights Act 1998
B) The Financial Services Act 2012
C) The Consumer Credit Act 2006
D) The Pre-Action Protocol (2008)
D) The Pre-Action Protocol (2008)
Explanation:
Since 2008, lenders must explore alternatives (e.g., repayment plans) before taking possession of a residential property. Courts may postpone possession if borrowers can repay arrears.
Lender A wants to take possession of a borrower’s home to sell it with vacant possession.
What is the main reason lenders prefer to sell a property with vacant possession?
A) It helps achieve a higher sale price
B) It ensures the borrower can stay in the property
C) It allows the lender to recover rental income
D) It prevents the borrower from challenging the sale
A) It helps achieve a higher sale price
Explanation:
A vacant property is more attractive to buyers, meaning the lender can sell at a better price to recover the debt.
A lender does not want to take possession or sell the property but wants to generate income to pay off the mortgage debt.
Which remedy should the lender choose?
A) Appoint a receiver
B) Apply for foreclosure
C) Take possession and evict the borrower
D) Write off the mortgage debt
A) Appoint a receiver
Explanation:
A receiver is appointed when the lender prefers to manage the property and collect rent rather than taking possession or selling.
A borrower defaults on their mortgage. The lender applies for foreclosure, meaning the borrower will lose all rights to the property.
What is the most likely outcome?
A) The lender will take ownership of the property
B) The borrower will be allowed to refinance the loan
C) The court will likely order a sale instead of foreclosure
D) The lender must return the property if the borrower later repays
C) The court will likely order a sale instead of foreclosure
Explanation:
Foreclosure is rarely used today—courts usually prefer a sale so the borrower can recover any surplus after repaying the mortgage
A lender sells a repossessed property but fails to advertise that it has valuable planning permission. The borrower claims the lender breached its duty.
What is the likely outcome?
A) The sale is valid, and the lender owes no duty to the borrower
B) The borrower can sue for damages if the lender did not take reasonable care
C) The borrower automatically gets the property back
D) The lender must sell the property again at a higher price
B) The borrower can sue for damages if the lender did not take reasonable care
Explanation:
📌 Key Case: Cuckmere Brick v Mutual Finance (1971)
Lenders must take reasonable steps to secure a fair market price when selling a repossessed property.
A borrower’s home is repossessed and sold. The lender sends them a cheque for £20,000 after clearing the mortgage debt.
Why did the borrower receive this money?
A) The lender made a mistake and will ask for repayment
B) The borrower was compensated for losing the property
C) The borrower was entitled to any surplus from the sale
D) The lender was required to pay interest on the sale proceeds
C) The borrower was entitled to any surplus from the sale
Explanation:
If a repossession sale results in a surplus, the borrower gets the remaining money after the lender has recovered the debt.
A lender appoints a receiver to manage a commercial property. The receiver negligently mismanages the property, causing financial losses.
Is the lender responsible for the receiver’s negligence?
A) Yes, because the lender appointed the receiver
B) No, because the receiver acts as the borrower’s agent
C) Yes, but only if the lender directly instructed the receiver’s actions
D) No, because receivers are always legally independent
B) No, because the receiver acts as the borrower’s agent
Explanation:
📌 Key Case: Medforth v Blake (2000)
A receiver acts as the borrower’s agent, meaning the lender is not liable for their mistakes.
