The Lender's Right to Sell and Duties when Selling Flashcards
When does a lender’s power of sale exist?
A) Only if stated expressly in the mortgage agreement
B) Only if the borrower has missed at least six mortgage payments
C) When the mortgage is made by deed, unless excluded
D) Only if the lender obtains a court order
C) When the mortgage is made by deed, unless excluded
Explanation:
📌 LPA 1925, s 101(1)(i) implies a power of sale whenever a mortgage is made by deed, unless specifically excluded in the mortgage terms.
Under LPA 1925, s 101(1)(i), when does the power of sale arise?
A) When the first capital repayment is due
B) When the borrower misses two consecutive payments
C) At the end of the mortgage term
D) Only when the borrower is declared bankrupt
A) When the first capital repayment is due
Explanation:
📌 Payne v Cardiff (1932): The power of sale arises as soon as any capital sum is due—even if only one payment is missed.
Under LPA 1925, s 103, when does the lender’s power of sale become exercisable?
A) When the borrower is over six months in arrears
B) When the borrower fails to maintain home insurance
C) When at least one of the s 103 conditions is met
D) After the lender serves court proceedings
C) When at least one of the s 103 conditions is met
Explanation:
📌 The power of sale is not exercisable immediately—it must meet at least one of the conditions in LPA 1925, s 103 (e.g., two months of unpaid interest).
What is the primary legal duty a lender owes when exercising the power of sale?
A) To obtain the highest possible price
B) To sell within a strict three-month period
C) To take reasonable care to obtain the true market value
D) To only sell the property by public auction
C) To take reasonable care to obtain the true market value
Explanation:
📌 Cuckmere Brick v Mutual Finance (1971): The lender must take reasonable care to get the true market value, but does not need to delay for a better price.
A borrower defaults on their mortgage, and the lender wants to sell the property. However, the borrower argues that only one payment is overdue.
Can the lender exercise its power of sale?
A) Yes, if one payment contains capital, the power of sale has arisen
B) No, because two full payments must be overdue
C) Yes, as long as the lender waits six months after the first missed payment
D) No, because court approval is required
A) Yes, if one payment contains capital, the power of sale has arisen
Explanation:
📌 Payne v Cardiff (1932): The power of sale arises as soon as any capital repayment becomes due.
A lender sells a repossessed house at auction but fails to advertise that it has valuable planning permission.
What is the most likely consequence?
A) The sale is automatically void
B) The lender must compensate the borrower for the loss
C) The borrower can apply to reverse the sale
D) The lender can sell the property again for a higher price
B) The lender must compensate the borrower for the loss
Explanation:
📌 Cuckmere Brick v Mutual Finance (1971): Lenders must disclose relevant details and take reasonable care to get the best price.
A lender accepts a sale price of £1.6 million for a repossessed property valued at between £1.6m and £1.9m.
Is the lender liable for selling too cheaply?
A) Yes, because they must always get the highest price
B) Yes, because they should have waited for a better offer
C) No, because they do not owe any duty to the borrower
D) No, because the price was within an acceptable range
D) No, because the price was within an acceptable range
Explanation:
📌 Michael v Miller (2004): The lender is not liable as long as the sale price is within a reasonable margin of error.
A lender sells a repossessed property at auction, and the winning bidder is the lender’s wife. The borrower later challenges the sale.
What is the likely court response?
A) The court will closely scrutinise the sale for fairness
B) The lender must pay the borrower 50% of the proceeds
C) The borrower has no right to challenge the sale
D) The sale is automatically void
A) The court will closely scrutinise the sale for fairness
Explanation:
📌 Tse Kwong Lam v Wong Chit Sen (1983): The court will carefully examine sales to connected parties to ensure fairness.
A lender plans to sell a repossessed house. The borrower requests a delay, arguing that house prices will increase in six months.
How should the lender respond?
A) Agree to wait six months
B) Reject the request as they have a right to sell
C) Seek court approval before selling
D) Offer to split any future profits with the borrower
B) Reject the request as they have a right to sell
Explanation:
📌 Silven Properties v RBS (2004): The lender does not need to delay a sale to maximise the property’s value.
A lender sells a repossessed property for £300,000. The mortgage debt was £250,000.
Who receives the remaining £50,000?
A) The lender keeps the full amount
B) The lender distributes it among other secured lenders first
C) The borrower receives any remaining surplus
D) The money is donated to the state
C) The borrower receives any remaining surplus
Explanation:
📌 LPA 1925, s 105: After paying secured debts, any surplus goes to the borrower.
