U6: T29 - LENDERS LEGAL RIGHTS AND REMEDIES

Question 1

Which of the following legal remedies is not used in the UK today?

a) Exercising the power of sale.
b) Suing on the borrower’s personal covenant.
c) Appointing a receiver.
d) Foreclosure.

Answer 1

d) Foreclosure.

Question 2

Appointing an LPA receiver is a legal remedy available where a property is let to tenants. True or false?

Answer 2

True: the LPA receiver collects and applies rental income to the mortgage account to ensure that the mortgage payments are maintained.

Question 3

Once a possession order has been granted, the lender can usually take possession within:

a) 7 days.
b) 14 days.
c) 28 days.
d) 60 days.

Answer 3

c) 28 days.

Question 4

Once a property has been taken into possession, the borrower has the right to regain possession by:

a) paying off the arrears, up to the point at which the lender exchanges contracts with a new buyer.
b) paying off the full mortgage debt, up to the point at which the lender markets the property for sale.
c) paying off the full mortgage debt, up to the point at which the lender exchanges contracts with a new buyer.
d) paying off the full mortgage debt, up to the point of completion of the sale to a new buyer.

Answer 4

c) paying off the full mortgage debt, up to the point at which the lender exchanges contracts with a new buyer.

Question 5

A suspended possession order automatically becomes an outright possession order if the borrower fails to keep up the agreed repayments. True or false?

Answer 5

False: a suspended possession order, if enforced, requires that the borrower make payment. If they do not, the lender can return to court to seek possession.

Question 6

Lenders have a legal obligation to sell a property taken into possession for at least the amount of the mortgage. True or false?

Answer 6

False: the lender must sell a repossessed property at the best price reasonably obtainable.

Question 7

Once a lender has taken possession of a property, it can delay a sale until it feels it will get the highest possible price. True or false?

Answer 7

False: the lender cannot ‘nurse’ the property to get the best price. It must sell as quickly as possible for the best available price.

Question 8

The right of subrogation enables insurers to sue borrowers for any amount paid out on a mortgage indemnity guarantee policy. True or false?

Answer 8

True: the right of subrogation has been tested in the courts and confirmed.

Question 9

Define Legal Remedies

Answer 9

Actions laid down in law that a lender can take against a borrower in default.

Question 10

If the county court issues an outright possession order, it enables the lender to take possession within how many days?

Answer 10

Usually within 28 days

Question 11

What notice period must a lender give to state it’s intention of repossession?

Answer 11

15 days

Question 12

Under Scottish property law, the power of sale arises automatically after 2 months has lapsed of ‘calling up’. True or false

Answer 12

True

Question 13

Under Scottish property law, how long must the whole debt be repaid by after the ‘calling up’ of arrears?

Answer 13

2 months

Question 14

Define ‘Equity of Redemption’.

Answer 14

The borrower’s right to settle the mortgage debt in full at any time up to the point of sale. ‘In full’ means the settlement must include any arrears.

Question 15

Define ‘Nursing’ a property

Answer 15

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.

Question 16

If the lender intends to pursue the borrower for the shortfall of property sale proceeds minus debt owed in the UK - how many years do they have to pursue that debt?

Answer 16

6 years

Question 17

If the lender intends to pursue the borrower for the shortfall of property sale proceeds minus debt owed in Scotland - how many years do they have to pursue that debt?

Answer 17

5 years

Question 18

What is meant by the term ‘subrogation’?

Answer 18

Subrogation is the right of the insurer to sue the borrower for repayment of any money paid out to the lender in the event of a successful claim on a mortgage indemnity guarantee (MIG) policy.

Question 19

The type of fee that is often used by a lender to purchase a mortgage indemnity guarantee (MIG)?

Answer 19

The fee is a higher lending charge, although in some cases MIGs are arranged by the lender without charge to the borrower. Note that where the lender levies such a fee but does not arrange a MIG, the principle of subrogation does not apply.

Question 20

Legal remedies available to a lender in England on a borrower defaulting are contained in which legislation?

A) Law of Property Act 1925.
B) Housing Act 1988.
C) Land Registration Act 2002.

Answer 20

A) Law of Property Act 1925.

The Land Registration Act 2002 covers the requirements for a property to be registered with the Land Registry. The Housing Act 1988 covers the rights of landlords renting out properties.

Question 21

Which of the following is true in relation to a lender exercising the power of sale and foreclosure?

a) Foreclosure allows the lender to keep any surplus from the sale of the property; power of sale does not.

b) Exercising the power of sale requires court authorisation; foreclosure does not.

C) Both allow the borrower to redeem the mortgage after the lender takes possession.

Answer 21

a) Foreclosure allows the lender to keep any surplus from the sale of the property; power of sale does not.

Foreclosure is seen to be unfair and is rarely, if ever, used today. Foreclosure allows the lender to keep any surplus from the sale, while the power of sale requires the lender to pass on to the borrower any surplus after the mortgage plus arrears and expenses have been settled. Both actions require authorisation from the court, although the foreclosure process is far more onerous and complex. While the power of sale allows the borrower to redeem the mortgage by settling the mortgage and arrears before the lender exchanges contracts with a buyer, foreclosure does not allow redemption.

Question 22

The court has granted a suspended possession order to a lender. This means that:

A) the lender has 30 days to make possession arrangements with the borrower.
B) possession is suspended to allow the borrower time to sell the property.
C) possession is suspended as long as the borrower makes court-ordered payments.

Answer 22

C) possession is suspended as long as the borrower makes court-ordered payments.

The court can grant a suspended possession order, imposing on the borrower an obligation to make payment in accordance with the court’s decision. 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.

Question 23

Which document contains the contractual obligation that gives a lender the right to sue on the borrower’s covenant? The:

A) mortgage contract.
B) legal charge.
C) court order

Answer 23

B) 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.

Question 24

A lender would exercise its right to appoint a receiver in the case of a borrower in arrears when:

A) suing for the borrower’s bankruptcy.
B) there is a tenant in the property.
C) taking possession of the property.

Answer 24

B) there is a tenant in the property.

The right to appoint a receiver is exercised when there is an income from the property. 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.

Question 25

Once a lender has been granted a possession order, the borrower will usually be required to vacate the property within what timescale?

A) 7 days.
B) 14 days.
C) 28 days.

Answer 25

C) 28 days.

Question 26

Argos Bank has taken possession of George’s house, but George has left various curtains and rugs behind. What action should the lender take?

A) Sell the items for the best possible price and pay the proceeds to George.
B) Allow George to enter the property to collect the items.
C) Hold the items in trust for George for a specified period.

Answer 26

C) Hold the items in trust for George for a specified period.

Any fittings, such as curtains and rugs 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.

Question 27

Once the lender has taken possession of a property, the ‘equity of redemption’ gives the borrower the right to:

A) settle the arrears and regain possession before the lender completes the sale of the property.
B) settle the mortgage plus arrears and regain possession before the lender exchanges contracts on the sale of the property.
C) negotiate an equitable amount to settle the debt and take the property back.

Answer 27

B) settle the mortgage plus arrears and regain possession before the lender exchanges contracts on the sale of the property.

The equity of redemption is the borrower’s right to settle the mortgage debt in full at any time until the lender exchanges contracts with a new buyer. ‘In full’ means the settlement must include any arrears.

Question 28

Many lenders in England demonstrate they have met their duty of care to obtain the best price reasonably obtainable for a repossessed property by:

A) commissioning at least two valuations from independent RICS-qualified valuers.
B) seeking best and final offers after an acceptable offer has been received by advertising in a local newspaper.
C) always selling repossessed properties through property auctions.

Answer 28

B) seeking best and final offers after an acceptable offer has been received by advertising in a local newspaper.

Question 29

Many lenders in England demonstrate they have met their duty of care to obtain the best price reasonably obtainable for a repossessed property by:

A) commissioning at least two valuations from independent RICS-qualified valuers.
B) seeking best and final offers after an acceptable offer has been received by advertising in a local newspaper.
C) always selling repossessed properties through property auctions.

Answer 29

B) seeking best and final offers after an acceptable offer has been received by advertising in a local newspaper.

Question 30

Which of the following is untrue of a claim made under a mortgage indemnity guarantee (MIG) policy?

A) The insurer has the right to claim back from the borrower all money paid to the lender.
B) The policy may not cover the entire mortgage shortfall.
C) The lender has no right to reclaim from the borrower any policy excess deducted by the insurer.

Answer 30

C) The lender has no right to reclaim from the borrower any policy excess deducted by the insurer.

The insurer can exercise its right of subrogation to claim from the borrower all money paid to the lender. The MIG covers the difference between the amount lent and the normal loan-to-value threshold, but any further shortfall is not covered. The lender has the right to sue the borrower for the amount of the excess deducted from the MIG claim.