Mortgages

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  • Created by: Hope
  • Created on: 08-05-16 15:20
How does Smith define mortgages?
"A property interest that exists to ensure payment of debt, most commonly by selling land if the debt is unpaid"
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What is an example of a collateral advantage?
A tied pub & brewery, petrol stations and oil companies
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What is it that normally triggers the lender to take action?
the accumulation of arrears
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How long do mortgagees normally wait before they take action?
Normally 3-6 months
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How many repossessions occur in the context of a family breakdown?
1/3
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What is the process after the lender takes the property?
They sell it on and use the money to pay back the debts and costs
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When does negative equity usually occur?
If you take out a mortgage and house prices go down
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What do Stuart & Pearce describe as "little short of scandalous"?
the fact that there is "no modern legislative statement of what a mortgage or charge is"
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How did you mortgage your house before LPA 1925?
If the owner of a legal or equitable estate in land wanted to mortgage the land, you would convey your land to the lender in return for the learn, then the lender promised to give you it back when you paid it
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What are the relevant provisions for making a legal mortgage?
s1 LPA, s85 LPA, s23 LRA, s27 LRA, s51 LRA
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What are the 3 ways in which you can make an equitable mortgage?
Mortgage of equitable interest, Informal mortgage of a legal interest, deposit of deeds
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What is the relevant provision/formality for mortgage of an equitable interest? When would you do that?
s 53 (1) (c) LPA, has to be in writing, maybe that you only have an equitable interest to start with
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When might you create an informal mortgage of legal interest?
When you're trying to make a legal mortgage, but didn't do it right, so you end up with a legal mortgage
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When do we use the deposit of deeds method? Why?
We no longer use it, it got abolished with part performance.
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What are the rights and remedies available to the lender?
Action on the personal covenant, entry into possession/repossession
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Which is the least likely to be used?
Action on a personal covenant
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What is action on a personal covenant?
The lender relies on the contract to say that the mortgagor has promised to pay the sum due, so they can be sued for the money like any other contract.
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What happens if the contract doesn't provide for everything? When might this happen?
The borrower will still be liable for the extra, like in situations of negative equity
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Is there a basic time limit? What is it? When does it start?
Yes, the time limit for a mortgagee to recover sums is 6 years of interest payments and 12 years for the principle loan sum, the clock starts when the first demand for payment was made
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What can borrowers do if they experience a shortfall?
Hope the lender will write it off, save to pay it, go in to bankruptcy, be pushed into bankruptcy by the lenders
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Does a mortgagee have any inherent rights to possession? Authority?
The mortgagee has an inherent right to possession, even when there has been no default on the payment. Four Maids Ltd v Dudley Marshall
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What must a mortgagee do before they go into possession?
They normally obtain a court order, although they don't have to
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What are the mortgagees responsible for with the property? Authority?
They are accountable for all of their income they recieved on the property, and can't keep any for principle. They become responsible for the management of the property and must show due dilligence, Rapaigealach v Dudley Marshall
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What jurisdiction does the court have at common law to restrict the lenders right to possession? Authority?
At common law, they may give temporary relief to a mortgagor a chance to pay the mortgage, Birmingham Citizens Permanent BS v Caunt
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What is the equitable jurisdiction? Authority? Limitation?
Lord Denning tried to make an argument in Quennell v Maltby that there should be a requirement of bona fide behaviour on the part of the leader, but this wasnt quite sufficient to meet the needs of the situation
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What did the Payne committee report lead to?
The administration of justice acts 1970 and 1973
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What happens where the repossession is of a dwelling house?
The court may adjourn the proceedings for possession for as long as the court thinks reasonable, if it appears likely that the adjournment will result on the mortgagor being able to pay the amount due in a reasonable time
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How do banks and building societies normally respond to these situations?
They usually have systems in place to negotiate a way to repay the money
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What is the limitation to this?
Clients are normally intimidated by the process and find it difficult to practically negotiate
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What happened in the last recession?
The govt. forced banks to be more lenient at negotiation stage. There were 3 key things to keep repossessions down; pre-action protocol for possession claims (still used), mortgage rescue scheme and mortgage support scheme (no longer in use)
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What happens if nothing is done after negotiations?
The lender will start possession proceedings in the county court, asking for a possession order
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What happens if the order is granted?
The owner will have 28 days to vacate the property
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What happens if the owner doesn't attend the possession order?
It automatically goes through
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What are the 3 possible outcomes of a mortgage repossession hearing?
possession order will be made, or the proceedings will be adjourned, or a suspended possession order will be made
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When will a judge make a possession order?
When they decide that there is no reasonable prospect of paying back the arrears?
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When will the court adjourn the proceedings?
When they can't decide, it is adjourned until new information occurs i.e. an imminent buyer or job interview
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What is a suspended possession order?
An order for possession but not activated as long as the borrower keeps making the payments that the court specify
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How do they make a decision?
Needs to be well informed, so all information needs to be brought to attention, like payslips, tax information etc.
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What is considered a reasonable period to pay the arrears? Authority?
The whole rest of the term of the mortgage: Cheltenham & Gloucester BS v Norgan
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What used to be the norm?
2-4 years
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What is the limitation to this period?
They can't continue to default on payments, the court will step in
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What are the first three criteria considered in a mortgage repossession case that should be considered?
How much can the borrower reasonable afford to pay now and in the future? If they have temporary difficulties in meeting obligations, how long are these likely to last? What are the reasons for accumulation of arrears?
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What are the second three criteria considered in a mortgage repossession case that should be considered?
How much of the original term remains? What are the relevant contractual terms of the mortgage? Is it a case where the court should exercise its power to disregard accelerated payment provisions?
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What are the last three criteria considered in a mortgage repossession case that should be considered?
Over what sort of period is it reasonable to expect the lender to recoup arrears of interest? Are there any reasons affecting the security which should influence the period for repayment? Are there any other particular factors?
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What kind of practical impact has Norgan had?
According to Lisa Whitehouse, it hasn't had a lot. Disctrict judges don't really go beyond 5 years
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What is an example of the rule in Norgan being successful?
Household Mortgage Corp v Pringle
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What are some case examples of the need for definite information?
Town and Country Building Soc v Julian, Hastings & Thanet Building Soc v Goddard
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Can you wait for sale? Authority?
Bristol & West BS v Ellis and Ellis- Yes, in some cases (not in this particular case)
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Can the mortgagee take possession without a court order?
Yes, there are some cases of this happening, but normally they do to give the other side a chance to fight back.
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Are there ways to circumvent this?
You can write it out of the agreement
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What is a case example of this happening?
Rapaigealach v Barclays Bank
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Why does this rarely happen?
Because the council of mortgage lenders protocol states you should get a court order, and they could risk criminal charges as well
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Is this a breach of human rights? Authority?
No- Horsham Properties v GMAC RFC Ltd
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What happened after this?
The law was expected to be changed, and the LC recommended it be changed. Parliament debated it but nothing happened, so the industry regulates itself
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What are the other relevant statutory provisions for mortgage repossession?
s 30 (3) family law act- anyone with home rights can make payments towards the mortgage, s 91 (2) LPA, any party to the mortgage can ask to be allowed to sell the property,
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What is a home right?
Personal right of occupation. You can request to be party to court proceedings, but don't need to be notified of sale. You can protect your home right at the land registry, but its quite a hostile thing to do but then you have a right to know of sale
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What are the ECHR articles you could apply here?
Art 8 (1) and (2)- respect of private and family life, home and correspondence
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What can human rights focus on? Why?
The actions of the court and statutory possession, because repossession is horizontal, with two private parties
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What do S.Nield and N.Hopkins have to say about it? Why?
That s36 is no longer fit for purpose in its present form. It does not reflect modern developments in human rights jurisprudence surrounding the home
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What happens if a landlord rents a property and then defaults on the mortgage? Presuming the mortgage predates the lease
If the lease is authorised by the mortgagee, then the mortgagee will be bound by the terms of the lease
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What is the relevant statue for this?
Mortgage repossessions (protection of tenants) act. 2010
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When do problems usually arise?
When the lease is unauthorised and the mortgagee didn't know about it
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What happens then as a result of the act?
There must now be notice to the property and the court also has discretion to allow the tenants a short breathing space so they can find new accomodation
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What happens if the mortgagor leaves their possessions in the house? Authority?
The mortgagee's responsibility is to do what is right an reasonable in the circumstances. Campbell v Redstone Mortgages - took her stuff to the tip because she left it there to frustrate sale
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What does the mortgagee need to do once they've gotten hold of the property? Provision?
They need to sell it to recoup their money- show under s101 (1) LPA 1925 that the power of sale arises, and then under s103 that it is exercisable
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Is this difficult? What could affect it?
Neither of these are particularly difficult to prove. The key issue is how the mortgagee behaves during the sale
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What happens to the proceeds of the sale? Provision?
s105 LPA: 1. pay costs and expenses of sale, 2. discharge outstanding mortgage and costs, 3. residue to borrower
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How must the mortgagee act?
In good faith, must discharge a duty of reasonable care, must exercise reasonable care to get the true market price
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What are the caveats to the duty to get a reasonable price?
They can't just get an estate agent to do it. If they fail here they may be liable for damages, but the court does understand a repossessed house will probably sell for less than normal
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Example of the nature of the duty?
Cuckmere Brick Co v Mutual Finance - mortgagee sold at undervalue because they didn't include details of relevant planning permission- liable in damages
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Whos responsibility is it to show the mortgagee has breached their duty?
The mortgagor
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What can this case be contrasted with?
Silven Properties Ltd v RBS- not their responsibility to take steps to increase market value
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Is there a time limit for the sale? Authority?
It is the decision of the mortgagee when they want to sell, subject to the limitation in s91 LPA- China & South Sea v Tansoon Gin
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Can this be contrasted?
Yes, with Predeth v Castle Phillips- after a quick crash sale, the property wasn't given enough time/exposure
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Can a mortgagee sell to himself or associated persons? Authority?
Farrar v Farrar - no. Its up to the mortgagee to show they acted properly
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What are the remedies for this? Authority?
If there has been bad faith, the sale may be set aside, but if its just carelessness, then compensation might be more appropriate (Corbett v Halifax)
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What provisions govern foreclosure? Rules?
s88 and 89 LPA. Always need a court order
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What happens in foreclosure cases?
The mortgagors estate vests in the mortgagee and the mortgage and its terms are extinguished
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Whats the difference between foreclosure and repossession?
With foreclosure, the mortgagee isn't under duty to account for any proceeds.
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What are the two stages of foreclosure?
foreclosure nisi, where the mortgagor can repay/redeem the mortgage, and if this isn't done, the foreclosure order absolute
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What is the equity of redemption?
the sum of the total rights of the mortgagor, which consists of the rights of the mortgagor as the beneficial owner of the property, minus the rights of the mortgagee as a secured creditor- Thompson
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What are clogs and fetters?
Clauses that have challenged the equity of redemption, which are unwelcome
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What sort of terms have been regarded as clogs?
attempts to restrict or deny the right to redeem the mortgage, attempts to include options to buy all or part of a mortgaged property, attempts to secure collateral advantages
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What is the main legal question when looking at these?
Is the doctrine of clogs and fetters still relevant and important?
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What are some case examples of more dramatic clogs and fetters on the right to redeem?
Fairclough v Swan Brewery Co - void, Knightsbridge Estates Trust v Bryne - not voided
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What was the landmark case concerning the options for the mortgagee to buy all or part of the property? What was held?
Jones v Morgan. The CA held that a clause where the mortgagee could acquire part of the land, was a clog on the equity of redemption
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What do Gray and Gray say about securing collateral advantages?
The sum total of the mortgagees entitlement is, in principle, restricted to the return of the loan capital
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Which case outlined the type of collateral advantage considered a clog or fetter?
Kreglinger v New Patagonia Meat & Storage Co Ltd
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What can a collateral advantage not be?
Unfair & Unconscionable, or in the nature of a penalty clogging the equity of redemption, or inconsistent with or repugnant to the contractual and equitable right to redeem
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What effect does the doctrine of equity of redemption have on agreements??
It will invalidate any contracts which place an unreasonable restriction on the future freedom of someone to carry on their trade, business or profession
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Who regulates the financial service providers providing the mortgages? What are their aims?
The financial conduct authority. To provide consumers with appropriate degrees of protection, to protect and enhance the integrity of the markets, to promote effective competition in the interests of consumers
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Card 2

Front

What is an example of a collateral advantage?

Back

A tied pub & brewery, petrol stations and oil companies

Card 3

Front

What is it that normally triggers the lender to take action?

Back

Preview of the front of card 3

Card 4

Front

How long do mortgagees normally wait before they take action?

Back

Preview of the front of card 4

Card 5

Front

How many repossessions occur in the context of a family breakdown?

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Preview of the front of card 5
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