U3: T4 - PRINCIPLES OF MORTGAGE AND PROPERTY LAW

Question 1

Define Conveyance

Answer 1

The transfer of rights in property is described as a conveyance.

Question 2

A borrower is known as the:

A) Mortgagor
B) Mortgagee

Answer 2

A) Mortgagor

Question 3

A lender is known as the:

A) Mortgagor
B) Mortgagee

Answer 3

B) Mortgagee

Question 4

What does the term ‘fee simple’ mean?

Answer 4

The right for the property to be inherited on death.

Question 5

What type of land ownership is described by ‘estate in fee simple absolute in possession’?

A) Freehold
B) Leasehold

Answer 5

A) Freehold

Question 6

What type of land ownership is described by ‘estate for a term of years absolute’?

A) Freehold
B) Leasehold

Answer 6

B) Leasehold

Question 7

Which type of mortgage is this?

The lender becomes the legal owner of the property when it is purchased, and legal ownership is transferred to the borrower when the mortgage is fully repaid.

A) Mortgage by demise
B) Mortgage by way of legal charge

Answer 7

A) Mortgage by demise

Question 8

Which type of mortgage is this?

The property is owned by the borrower from
the outset. The legal charge is a deed that states that the property has been charged with the debt (the loan) as security for the lender.

A) Mortgage by demise
B) Mortgage by way of legal charge

Answer 8

B) Mortgage by way of legal charge

Question 9

With respect to property ownership, joint tenancy means:

A) Property ownership is shared
B) Each joint owner owns 100 per cent of the
property

Answer 9

B) Each joint owner owns 100 per cent of the
property

Question 10

With respect to property ownership, tenancy in common means:

A) Property ownership is shared
B) Each joint owner owns 100 per cent of the
property

Answer 10

A) Property ownership is shared

Question 11

Define ‘Tenure’

Answer 11

Denotes the way in which title to the property is held; it is taken from the French tenir, meaning ‘to hold’

Question 12

What is the typical minimum duration of lease on a leasehold that lenders require for a mortgage?

Answer 12

30-40 years more than the mortgage term

Question 13

The vendor is the?

Answer 13

The seller of the property.

Question 14

With respect to leaseholders, forfeiture is?

Answer 14

Failure to comply with a lease conditions.

Question 15

With respect to leaseholders, what is enfranchisement?

Answer 15

The right of the owners of leasehold properties in a building (eg a block of flats) to join together to buy the freehold of the building.

Question 16

The borrower is known as the ‘mortgagor’. True or false?

Answer 16

True: the borrower is known as the mortgagor, the lender is the mortgagee.

Question 17

Which of the following is the technical definition of ‘freehold’ land tenure?

a) Estate in fee simple absolute in possession.
b) Estate in fee simple for a term of years absolute.
c) Estate in possession for fee simple absolute.
d) Absolute term in possession for fee simple

Answer 17

a) Estate in fee simple absolute in possession.

Question 18

A legal charge is known in Scotland as a mortgage by demise. True or false?

Answer 18

False: a legal charge is known in Scotland as a standard security.

Question 19

A ‘second mortgage’ is a further loan from the original lender. True or false?

Answer 19

False. A further loan from the original lender is known as a ‘further advance’.

Question 20

Where more than one charge is held over registered land, the order of priority for repayment in the event of default is determined by:

a) which lender is owed the most money.
b) the magistrates’ court.
c) the date order in which the charges were registered.
d) the Financial Ombudsman Service

Answer 20

c) the date order in which the charges were registered.

Question 21

Gary had a property subject to a legal charge with the Pleasant Building Society, registered 15 years ago on 1 May, securing a loan of £140,000, and a legal charge with the Consolidated Loans company, registered 10 years ago on 11 July, securing a loan of £30,000. Gary defaulted on his loans and the house was taken into possession and sold for £160,000 on 10 May this year. Who would get what from the proceeds of the sale?

a) Consolidated Loans would receive £30,000 and Pleasant Building Society would receive £130,000.
b) Pleasant Building Society would receive £140,000 and Consolidated Loans would receive £20,000.
c) Pleasant Building Society would receive £140,000, Gary would receive £20,000 and Consolidated Loans would receive nothing.
d) Pleasant Building Society and Consolidated Loans would require the court to decide how the proceeds should be divided between them.

Answer 21

b) Pleasant Building Society would receive £140,000 and Consolidated Loans would receive £20,000.

Question 22

‘Tenancy in common’ means that when one joint owner dies their beneficiaries automatically become joint legal owners of the property. True or false?

Answer 22

False: the survivor becomes the sole legal owner, but must hold their deceased co‑owner’s part in trust for the deceased’s beneficiaries.

Question 23

Keith and Linda have just married. They have both been married before and each has two adult children. Each has a house of their own, but they have now decided to sell them and buy a home together. Which ownership arrangement would enable them each to leave their share of the property value to their children on their death?

a) Joint tenancy.
b) Joint and several tenancy.
c) Tenancy in common.
d) Ownership in one name with the partner as a beneficial owner.

Answer 23

c) Tenancy in common would allow each of them to leave the value of their share to their children.

Question 24

Why might it be inadvisable for a leaseholder with 20 years remaining on their lease to put their flat on the market?

Answer 24

A flat with only 20 years remaining on the lease might have to be sold far below the going market rate for similar properties; it would be preferable to negotiate an extension to the lease before trying to sell the flat.

Question 25

Iliana owns one of two flats in a converted house on a leasehold basis. She and her fellow leaseholder cannot buy the freehold of the property because it is too small to qualify under the commonhold legislation.

True or false?

Answer 25

False. A building need only contain a minimum of two flats in order for the leaseholders to have the right to buy the freehold.

Question 26

A property held as an ‘estate in fee simple absolute in possession’ is more commonly known as:

A) leasehold.
B) freehold.
C) commonhold.

Answer 26

B) freehold.

Leasehold is referred to as ‘estate for a term of years absolute’. Commonhold does not have a definition under the property Acts of 1925, as it is a recent development.

Question 27

Where two or more loans are secured on a property, their priority is determined by the:

A) date of their registration.
B) amount of the loan.
C) term of the loan.

Answer 27

A) date of their registration.

Priority of charges is determined by the date of registration. The amount and term of the loan are irrelevant.

Question 28

The maximum number of people that can be registered as legal owners of a property is:

A) three.
B) four.
C) unlimited.

Answer 28

B) four.

The maximum number of legal owners is four. If more than four people own a property, four will be registered as legal owners and hold the property on trust for themselves and the equitable (non-legal) owners.

Question 29

Greg and Max are civil partners who own their mortgaged house on a joint tenancy basis. This means that, if one of them dies:

A) their share of the property will be passed on according to the terms of their will.
B) the survivor will have to seek the lender’s permission to become the sole legal owner of the property.
C) the survivor will automatically become the legal owner of the whole property.

Answer 29

C) the survivor will automatically become the legal owner of the whole property.

Joint tenancy means each partner technically owns 100% of the property and, under the principle of survivorship, the survivor will automatically become owner of the property, regardless of the terms of any will.

Question 30

Which of the following statements about tenancy in common is true?

A) Each joint owner has a beneficial interest equal to their agreed share of the property.
B) If one owner dies, the surviving owner can place a restriction at the Land Registry to prevent the deceased’s beneficiaries forcing a sale.
C) Once the surviving owner has been registered as the legal owner, they can sell the property.

Answer 30

A) Each joint owner has a beneficial interest equal to their agreed share of the property.

Each joint owner is regarded as having a beneficial interest equal to their agreed share of the property, ie their share of the remaining equity in the property.

On the death of a joint tenant in common, legal title to the whole property passes to the survivor, who continues to hold it as a trustee in land. There is then one legal owner of the property.

When a tenancy in common is set up, a restriction is placed on the title at the Land Registry. This prevents either party from selling the property or their share without agreement from the co-owner. A surviving legal owner cannot sell the property without following a legal process.

Question 31

Which of the following statements are false in relation to land tenure? Select all the false statements.

A) There may be some restrictions on what an owner can do with, or on, a freehold property.
B) Lenders generally prefer freehold flats to leasehold flats.
C) Lenders are usually reluctant to lend on property with a flying freehold.
D) Leaseholders may be required to contribute towards the cost of maintenance for common areas of the building.
E) For a 25-year mortgage on a leasehold flat, a lender would require an unexpired lease term of at least 30–40 years.
F) If the borrower fails to comply with the conditions of a lease, their rights are forfeited to the lender.

Answer 31

B) Lenders generally prefer freehold flats to leasehold flats.
E) For a 25-year mortgage on a leasehold flat, a lender would require an unexpired lease term of at least 30–40 years.
F) If the borrower fails to comply with the conditions of a lease, their rights are forfeited to the lender.

Lenders are generally reluctant to lend on freehold flats due to lack of clarity about the responsibility for common areas in the building.

A lender for a leasehold flat usually requires a minimum unexpired lease term of 55–65 years.

If the borrower fails to comply with the conditions of a lease, the freeholder has the right to claim forfeiture, the lease is cancelled and the leaseholder no longer has any rights to the property. This also causes the lender’s security to disappear.

Question 32

With commonhold tenure, each individual unit holder:

A) owns their unit and an equal share of the common areas of the building.
B) owns their unit and a share in the commonhold association.
C) can choose whether to own their unit on a commonhold or leasehold basis.

Answer 32

B) owns their unit and a share in the commonhold association.

Each unit owner owns their unit and a share in the commonhold association, a company owned by the shareholders. The commonhold association manages and maintains the common parts of the building.

Question 33

Which of the following statements apply to a leaseholder buying the freehold of their leasehold flat? Select all that apply.

A) The original lease on their flat must have been for more than 21 years.
B) At least 50% of the flats in the block must be held on a similarly long lease.
C) At least two thirds of the owners in the block must agree to participate in the purchase.
D) There must be at least 21 years left on the lease.
E) No more than 25% of the internal floor area of the building, excluding common areas, can be used for non-residential purposes.
F) Owners who rent out their flat can participate.

Answer 33

A) The original lease on their flat must have been for more than 21 years.
E) No more than 25% of the internal floor area of the building, excluding common areas, can be used for non-residential purposes.
F) Owners who rent out their flat can participate.

At least two thirds of the flats in the block must be held on a long lease. At least 50% of the owners in the block must agree to participate in the purchase. The time left on the lease is irrelevant, as long as the original lease was for more than 21 years.

Question 34

Andrea has 40 years left on the lease of her flat and meets the criteria to extend her lease. If she took advantage of this right, what would be the length of the new lease?

A) 60 years.
B) 90 years.
C) 130 years.

Answer 34

C) 130 years.

The extension would add 90 years to the existing term of the lease.

Question 35

If Andrea extended the lease on her flat, she would need to negotiate a new ground rent figure as part of the arrangement.

True
False

Answer 35

False

No ground rent is payable on the extended period of the lease.

Question 36

What 3 pieces of legislation were passed in 1925?

Answer 36

Land charges Act
Land registration Act
Law of property Act

Question 37

What is the difference between Freehold and Leasehold?

Answer 37

Leasehold you own the property but not the land (and will often pay ground rent to own the property)

Question 38

Which of the following groups of people cannot buy property?

A) A minor
B) An elderly person
C) A middle-aged person

Answer 38

A) A minor under the age of 18

Question 39

What 2 types of mortgages are there?

Answer 39

1) Mortgage by legal charge
2) Mortgage by demise

Question 40

When was the mortgage by demise abolished for registered property?

Answer 40

In 2002 by the Land Registration Act, but is still used and arranged on unregistered property.

Question 41

Define a ‘professional customer’?

Answer 41

The FCA defines a ‘professional customer’ as one who has worked in the home finance sector for at least a year, in a professional position that requires knowledge of the product or service to be arranged, and who the firm reasonably believes to be capable of understanding the risks involved in the proposed arrangements.

Question 42

Define a ‘personal representative’?

Answer 42

Personal representatives (or executors in Scotland) act in managing the estates of deceased people.

Question 43

If a deceased person has left a will, the personal representative is called?

A) The executor
B) The administrator

Answer 43

A) The executor

If the deceased person has left a will, the personal representative is called an executor and is named by grant of probate.

Question 44

If a deceased person has not left a will, the personal representative is called?

A) The executor
B) The administrator

Answer 44

B) The administrator

If the deceased has not left a will, the representative is an administrator, appointed by letters of administration.

Question 45

Mortgages taken out by individuals for business purposes are regulated and subject to MCOB if:

A) the borrowing is secured by a legal charge on a property where at least 20 per cent of the land is used as a residence (the standard definition of a regulated mortgage);
B) the borrowing is secured by a legal charge on a property where at least 40 per cent of the land is used as a residence (the standard definition of a regulated mortgage);
C) the sole purpose of the mortgage, remortgage or further advance is to raise funds for use by a small business (ie one with turnover of less than £1m per year).

Answer 45

B & C

B) the borrowing is secured by a legal charge on a property where at least 40 per cent of the land is used as a residence (the standard definition of a regulated mortgage);
C) the sole purpose of the mortgage, remortgage or further advance is to raise funds for use by a small business (ie one with turnover of less than £1m per year).

Question 46

Is mortgage lending to an LLP regulated?

Answer 46

No.

Mortgage lending directly to an LLP is not regulated.

Question 47

Are corporate mortgages (lent to SPVs) regulated?

Answer 47

Corporate mortgages are not regulated by the FCA, regardless of the type of property, because the loan is to a company, not an individual, but it will be covered by MCOB rules if the firm has a turnover of less than £1m.

Question 48

What is the maximum % of total lending building societies can lend on corporate mortgages?

Answer 48

25%

A maximum of 25 per cent of a building society’s commercial assets can be held in loans to limited companies secured on land.

Question 49

What is the difference between a commercial vs corporate borrower?

Answer 49

A commercial mortgage is one that is secured on commercial property (for example, a shop or a factory) as opposed to residential property.

Corporate mortgages are lent to businesses not individuals (could be commercial or residential property).

Question 50

Which FCA paper outlines ‘vulnerable customers’?

A) Occasional Paper No. 6 (2016)
B) Occasional Paper No. 7 (2016)
C) Occasional Paper No. 8 (2016)
D) Occasional Paper No. 6 (2015)

Answer 50

C) Occasional Paper No. 8 (2016)

Question 51

Which of the following is not a listed driver for the FCA’s vulnerable customer?

1) Health
2) Life Events
3) Resilience
4) Capability
5) Intelligence

Answer 51

5) Intelligence - not a driver

The Occasional Paper No. 8 (2016) identifies four key ‘drivers’ that could cause vulnerability:

1) „ Health – health conditions or illnesses that affect the ability to carry out day‐to‐day tasks.
„2) Life events – such as bereavement, job loss or relationship breakdown.
„3) Resilience – low ability to withstand financial or emotional shocks.
„4) Capability – low knowledge of financial matters or low confidence in managing money (financial capability). Low capability in other relevant areas such as literacy or digital skills.

Question 52

Which of the following are not restricted by law to borrow?

„A) minors;
„B) the mentally incapacitated;
„C) undischarged bankrupts and those with poor credit records.
D) Very elderly

Answer 52

D) Very elderly

Question 53

What is the minimum debt required for a person to petition for their own bankruptcy?

Answer 53

No limit.

An individual can petition for their own bankruptcy, regardless of how much they owe.

Question 54

What is the minimum debt required for a creditor to petition for a debtor’s bankruptcy?

Answer 54

£5k

Creditors can petition for a debtor’s bankruptcy if the debt is at least £5,000 in England, Wales and Northern Ireland.

Question 55

How long is the typical bankruptcy period?

Answer 55

12 months

Question 56

Can a bankruptcy period be extended beyond 12m?

Answer 56

A bankruptcy order can be extended in certain situations beyond 12 months – for example, if the individual does not co‐operate with the trustee.

Question 57

The law restricts undischarged bankrupts from borrowing.

True or false?

Answer 57

False.

The law does not always prevent an undischarged bankrupt from borrowing, but it places significant restrictions on them

Question 58

It is possible for undischarged bankrupts to borrow for a mortgage on a property they already own.

True or false?

Answer 58

True - though in practice very hard to find a lender willing to lend to a bankrupt.

Question 59

An Individual Voluntary Arrangement or Debt Relief Order would prevent someone from obtaining a mortgage.

True or false?

Answer 59

False.

An IVA or DRO does not legally prevent an individual from taking out a mortgage, but lenders may be unwilling to consider an application.

Question 60

In terms of a trust, who is a donor?

Answer 60

The person granting powers to their representative.

Question 61

In terms of a trust, who is a donee?

Answer 61

The attorney. The person granted the powers to act on the donor’s behalf. Also sometimes referred to as the ‘donee’.

Question 62

What is a lasting power of attorney?

Answer 62

While an ordinary power of attorney ceases on mental incapacity, a lasting power of attorney (LPA) is specifically designed to enable people to decide who will look after their affairs if and when they are mentally unable to do so themselves, and to enable that person to take up those powers with minimal disruption.

Question 63

What are the two forms of LPA?

Answer 63

Financial and property affairs
Health and welfare

Question 64

Which of the following LPAs can be used as soon as it is registered?

• Financial and property affairs
• Health and welfare

Answer 64

Financial and property affairs - once the power has been registered, the attorney can look after the donor’s finances and property, usually including borrowing unless it is specifically excluded.

Health and Welfare - can only be used once the donor has lost mental capacity and is no longer able to make decisions for themselves.

Question 65

During what year did 3 significant property acts come into force?

Answer 65

1925

Question 66

What is the following more commonly referred to as ‘estate in fee simple absolute in possession’?

Answer 66

Freehold

Question 67

What is the following more commonly referred to as ‘estate for a term of years absolute’?

Answer 67

Leasehold

Question 68

If the legal borrower obtains ownership when the mortgage is repaid, it is a?

A) Mortgage by way of legal charge
B) Mortgage by demise

Answer 68

B) Mortgage by demise

Question 69

If the legal borrower obtains ownership from the outset, it is a?

A) Mortgage by way of legal charge
B) Mortgage by demise

Answer 69

A) Mortgage by way of legal charge

Question 70

Tenants in common are regarded as one legal owner of the land?

Answer 70

True.

The same basic principle applies to legal ownership – the joint legal owners are regarded as one single owner but are trustees of the land.

Question 71

Tenants in common are regarded as one beneficial owner of the land?

Answer 71

False.

Each legal owner is also the beneficial (or equitable) owner of a DEFINED interest (share) of the equity in the property, as agreed between them.

Question 72

Joint Tenants are regarded as one legal and beneficial owner of the land?

Answer 72

True.

In simple terms it means that each joint owner owns 100 per cent of the property – there is no division of the property. On the death of any joint owner, the surviving joint owner(s) will take over legal ownership of the property.

Question 73

What happens when one of two joint tenants in common dies?

Answer 73

The surviving tenant in common is the sole legal owner but the beneficial ownership of the deceased is passed down in accordance with their will.

The legal owner must act in the interest of both beneficial owners and must appoint a new legal owner (following a legal process).

Once there are two legal owners again, the property can be sold and the proceeds distributed in accordance with the agreed shares.

The mortgage would be on a joint and several basis, so the survivor would take over responsibility for the debt, regardless of their eventual share of the property.

Question 74

A freeholder is also referred to as:

1) The lessee
2) The lessor

Answer 74

2) The lessor

Question 75

A leaseholder is also referred to as:

1) The lessee
2) The lessor

Answer 75

1) The lessee

Question 76

What were the 3 main features of Commonhold and Leasehold Reform act 2002?

Answer 76

Commonhold
Right to buy freehold
Right of lease extension

Question 77

What is enfranchisement?

Answer 77

The right of the owners of leasehold properties in a building (eg a block of flats) to join together to buy the freehold of the building.

Question 78

With respect to buying the freehold of a leasehold flat, what makes you a qualifying tenant?

Answer 78

The original lease was for more than 21 years.

Where the lease has changed ownership, the right passes to the new leaseholder, providing the original lease was for longer than 21 years.

Question 79

With respect to buying the freehold of a leasehold flat, you are not a qualifying tenant if you don’t live in the flat.

True or false?

Answer 79

False.

There is no need for the leaseholder to live in a flat, which means landlords can still qualify.

Question 80

With respect to buying the freehold of a leasehold flat, what 4 facts makes it a qualifying BUILDING?

Answer 80

„1) The building must contain two or more flats.
„
2) At least two‐thirds of the flats must be held on a long lease – a lease that was originally granted for a term of more than 21 years.
„
3) No more than 25 per cent of the internal floor area of the building (excluding common areas such as stairs and hallways) can be used for non‐residential purposes.
„
4) At least 50 percent of the lease holders in the block must agree to participate. For example, in a block of 12 flats, at least eight must be held on a long lease and at least six leaseholders must agree to participate in the purchase.

Question 81

If the lease holder owns qualifying leases of more than two flats in the building, they cannot buy the freehold.

True or false

Answer 81

True

Question 82

If the landlord is a charitable housing trust and provides the flat as part of its charitable work, the leaseholder cannot buy the freehold.

True or false

Answer 82

True

Question 83

If the lease is for commercial purposes, the leaseholder cannot buy the freehold.

True or false

Answer 83

True

Question 84

Leaseholders can purchase the freehold where there are 4 or fewer flats and one of the flats is owned by the freeholder (resident landlord).

True or false?

Answer 84

False.

A further major restriction on leaseholders purchasing the freehold of their building is a situation where it is a converted property with four or fewer flats and the same person has held the freehold since before the conversion, and they (or an adult family member) have lived in one of the flats as their main residence during the previous 12 months. For ease of understanding we can call them a ‘resident landlord’.

Question 85

What is the minimum term a leaseholder has to be living in the property in order to have the right for lease extension?

Answer 85

2 years.