Topic 29 - Lenders’ legal rights and remedies Flashcards
What is the most commonly used legal remedy a lender takes when a mortgagor defaults?
The lender sues the
borrower for possession of the property and then sells the property in order
to recover the debt
What are the 5 legal remedies available to a lender when the borrower defaults
What is a legal remedy?
Legal remedies = The actions laid down in law that a lender can take against a borrower in
default
The lender can:
Sue for possession
Exercise the power of sale
Sue on the borrower’s
personal covenant for recovery of the debt
Appoint a receive
Foreclosure
(now not used)
A lender has chosen to seek a possession order which is one of their 5 legal remedies available to them
What happens next?
The lender must petition the county court for a possession
order. The county court will consider whether
all other options have been reviewed and this is the last resort
If the county court feels it is, which is should be, there are a number of things that could happen. These are:
Grant an outright possession order, enabling the lender to take possession,
usually within 28 days
OR
Grant a suspended possession order, which forces the borrower make repayments. The
suspended possession order becomes enforceable if the borrower fails to keep up the repayments. (The court will have to grant a final possession
order in this situation)
OR
Adjourn or suspend the case until a future date, or even dismiss it all together (if the lender has not reviewed all options or the lender cannot provide the courts with adequate docs - the lender must be well prepared for court hearings)
True or false.
A borrower can still settle the full mortgage account, which includes the capital plus arrears, even after the date of possession takes place?
True
The borrower has until the point at which the lender exchanges contracts with a
new buyer. This is why the lender still has a duty of care for the debtor even after the possession is complete
A lender has chosen to exercise their right to sue the borrower’s covenant, which is one of the 5 legal remedies available to the lender when the mortgagor defaults
What does this mean?
Sue the borrower on their personal covenant to repay the debt that arises from the contractual obligations in the legal charge
Taking this action is often futile because, even if the court makes an award to
the lender, the borrower may not have the resources to pay it
A lender has chosen to exercise their right power of sale, which is one of the 5 legal remedies available to the lender when the mortgagor defaults
What does this entail
It allows lenders to sell a property in specified circumstances
This is rarely used for residential property
It allows the lender to sell the property in 1 of 3 circumstances:
the mortgage has not been repaid within three months of the lender serving
notice to the borrower requiring full repayment of the loan;
the borrower is more than two months in arrears;
the borrower breaches another non‑financial mortgage covenant
A lender has chosen to exercise their right to appoint a receiver, which is one of the 5 legal remedies available to the lender when the mortgagor defaults
Exercised when
there is an income from the property.
For example, when the
property has tenants who are paying rent.
The receiver collects the rent and any other income from the property on behalf of the lender, and this
money is applied to the mortgage account to reduce the overall debt
NOTE: Lenders must be careful when exercising this right because their may an unauthorised tenant at the property, and by doing this the lender is formally recognising them as a tenant – this could create an overriding interest for the tenant
A lender has chosen to exercise their right to forclosure, which WAS one of the 5 legal remedies available to the lender when the mortgagor defaults
Forclosure is no longer available in the UK. Explain why this is
A foreclosure
order is never used in the UK today.
A foreclosure order results in the borrower
forfeiting all rights to the property. The lender is theoretically able to take possession, sell the security and retain any surplus. The borrower loses the
right to redeem the mortgage after possession – this is now regarded as unfair so no longer used
NOTE:
FORCLOSURE is
generically used to mean pursuing recovery of a debt so two meanings
In relation of Residential Property, Before starting formal possession proceedings, the lender must follow the
Ministry of Justice’s Pre‑Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears
What is the purpose or aim of this protocol?
ensure the lender and borrower act fairly and reasonably in resolving any arrears‑related matters;
encourage greater pre‑action contact to reach an agreement out of court, or, when an agreement cannot be reached, to enable efficient use of the
court’s time and resources;
encourage lenders to check who occupies the property before starting
possession proceeding
If, after all reasonable attempts to resolve the problem have failed, the lender
wishes to repossess the property, it must give 15 days’ notice in writing of its
intention
A lender cannot start the possession process if the borrower can
demonstrate WHAT?
a claim has been submitted for an SMI loan, for Universal Credit, for an
MPPI policy or for help from a mortgage rescue scheme;
there is a reasonable expectation of a payment from the DWP, an insurance policy, a local authority or a charity;
they have financial or specific personal difficulties affecting affordability and so need time to seek independent debt advice
Their financial circumstances should improve in the foreseeable future;
they have made a legitimate complaint about the possession claim to the
FOS;
they are taking active steps to market the property at an appropriate price
and have given the lender specified information
From start to finish outline the possession order procedure/process
PART 1
Outline from start to finish the process/procedure of a possession order
PART 2
When taking possession of the property what happens if the debtor leaves fittings behind?
What happens to the water/electric etc
Fixtures pass to the lender but any fittings left behind by the borrower are held in trust on their behalf
If the borrower reclaims them, the lender must take care not to
readmit them to the property, or a new possession order
may be required.
The lender should list the items involved and document how it has dealt with them, eg by arranging
removal and storage.
A mortgagee in possession can be held liable if it can be established that it has been negligent towards the borrower’s belongings.
If the borrower’s fittings are not claimed by a specified time, they may be disposed of, with any proceeds credited to the mortgage account
Utilities such as water, gas, electricity and telephone must be disconnected, and gas and electricity meters must be read. The local water and sewerage authorities should be advised that the property is empty.
The borrower is responsible for
payment of services used before the readings were taken
The borrower retains an ‘equity of redemption’ after possession. What is this
The borrower’s right to settle the mortgage debt in full at any time up to the point of sale.
In otherwords, the borrower retains an ‘equity of redemption’
until the lender exchanges contracts with a new buyer
In otherwords, the borrower can pay off the debts up until the point of exchange in contracts
‘In full’ means the settlement must include any arrears.
What is ‘NURSING’ A PROPERTY
Setting a sale price and then not selling the property until an offer at or very near that price is received, regardless of the time taken to achieve it
lenders cannot do this because of the implications to the borrower, they just have to obtain the best price reasonably possible
Tell me the process/procedure a lender takes when selling a property after possession
Part 1
Tell me the process/procedure a lender must following when selling a property following possession
Part 2
