Topic 26 - Lenders' Legal Rights and Remedies

Question 1

The most commonly used legal remedies are when the lender sues the borrower for possession and then sells the property to recover the debt.

Before the county court grants such an order it has to be satisfied that every other option has been explored.

The court then has discretion to take one of three courses of action:

Answer 1

1) Grant an outright possession order, enabling the lender to take possession within 28 days.
2) Grant a suspended possession order, imposing on the borrower an obligation to make payment in accordance with the court’s decision.
3) Adjourn or suspend the case until a further date. This occurs if the lender is unable to demonstrate they have done everything possible to help the borrower.

Question 2

Even after the date of possession, the lender owes what to the borrower?

Answer 2

A duty of care.

Question 3

The borrower can settle the full mortgage account, including the capital plus arrears, until which point?

Answer 3

The point at which the lender exchanges contracts to the buyer. The borrower has ‘equity of redemption’ until this point.

Question 4

Once the lender has sold the property it must pass on to the borrower…

Answer 4

…any surplus after the mortgage debt in addition fees and costs incurred have been settled.

Question 5

What is the right to appoint a receiver?

Answer 5

This is exercised when there is an income from the property e.g. when the property has tenants paying rent. The receiver collects the rent and this goes towards reducing the debt.

The receiver can be an agent of the lender, but serves as an agent for the borrower in respect of disbursement of money received and duties of accountability to the borrower.

Question 6

If there is an unauthorised tenancy…

Answer 6

…the lender must do nothing that could be considered as formally recognising the tenancy, which could create an overriding interest for the tenant.

Question 7

Foreclosure is…

Answer 7

…of historical importance only. It is never used today. In this arrangement, the borrower would lose any right to redeem the property after possession.

Question 8

Considerations when taking possession:

Answer 8

• Disconnection of utilities. Readings should be taken.
• Telephone should be disconnected. Bill up to the date of possession should be taken from telephone company
• Local police should be advised that the property is unoccupied
• Fixtures pass to the lender but any fittings left behind are held in trust on their behalf. if the fittings are not claimed by a specified time, they may be disposed of

Question 9

What is subrogation?

Answer 9

This is the right of an insurer to pursue a third party that caused an insurance loss to the insured person.

Question 10

Procedure on a default where a mortgage indemnity guarantee (MIG) is in place:

Answer 10

1) The lender claims on the MIG policy. The claim is the difference between the amount lent and normal LTV threshold. Further shortfall is not covered.
2) The insurer pays the lender.
3) The insurer exercises subrogation. It sues the borrower for all money paid to the lender.
4) The lender may also sue the borrower for the amount of excess deducted from the MIG claim.