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Mortgages, If the property is worth more than the debt owed, the lender…

- - - - deed needed for legal estate (FH/LH)
        
        deed requirements 4x
        
        in writing
        
        clear on face its a deed
        
        witnessed (by one witness)
        
        delivered
    - - valid contract for a legal interest but the formalities of a legal document are not met
    - - When the mortgage is created over an equitable interest (such as a co-owner’s share in land held under a trust), it must comply with Section 53(1) of the LPA 1925. This requires the mortgage to be in writing and signed by the person creating the mortgage.
- - - - in practice, right only exercised if b is in default
    - - No violence (s.6 CLA): The lender cannot use or threaten violence to gain possession if anyone known to be on the property resists.
        
        court order required for:
        
        Residential Properties Occupied by Borrowers
        
        When Borrowers Resist Possession
        
        strict duty to account- when a lender takes possession of a mortgaged property that generates income (such as rent), they have specific obligations in managing and accounting for that income:
        (a) account to borrower for surplus (if income collected from property exceeds amount owed by b)
        (b) manage property with due diligence- The lender is required to manage the property responsibly, as if it were a trustee. they must actively collect all reasonable income and act with due diligence to avoid losses. If the lender fails to manage the property correctly and misses out on income (such as failing to collect rent from tenants), they must still account to the borrower for that lost income.
      - where court order not required for lender to take possession:
        court order is not necessary if the lender can take possession peacefully without breaching s.6 (e.g. when the property is vacant or if the property is rented and tenants can be directed to pay rent to the lender instead)
    - - Pre-Action Protocol:
        
        Before starting possession proceedings, lenders must follow the pre-action protocol for residential properties. This protocol encourages lenders and borrowers to communicate openly to resolve the issue without repossession.
        This may involve discussing options such as restructuring the loan, rescheduling payments, or even selling the property voluntarily to pay off the debt.
        The protocol aims to allow the borrower to keep their home by helping them make payments or find alternative solutions
      - s.36 AJA allows the borrower to apply to the court for protection once possession proceedings have begun.
        
        the court has the discretion to:
        
        Adjourn the proceedings (delay them),
        
        Suspend execution of a possession order (temporarily halt enforcement), or
        
        Postpone the date by which the borrower must give up possession of the property.
        
        s.36 applies when:
        (a) The lender has already initiated possession proceedings,
        (b) The property includes a residential dwelling, and
        (c) The borrower can realistically pay off the arrears within a "reasonable period."
        
        a "reasonable period" includes the remaining term of the mortgage.
        
        borrower needs to provide detailed plan demonstrating they can pay both the mortgage installments when they fall due and an arreas
  - - - power of sale must:
        
        exist
        
        power expressly stated in mortgage deed or implied into every legal mortgage (provided not excluded)
        
        have arisen
        
        mortgage money must be due.
        
        This generally means that the "legal date for redemption" (when the borrower could have paid off the loan to reclaim the full ownership) has passed. typically 1 month into mortgage term
        
        However, in practice, since most residential mortgages are structured as instalment mortgages, the power of sale can also arise if any payment instalment has become overdue.
        
        The specific legal date for redemption outlined in mortgage deed itself
        
        become exercisable
        
        either set out expressly in mortgage deed or lender rely on one of elements in s.103 LPA:
        (i) Notice of Repayment: The lender sends the borrower a notice requesting full repayment of the loan, and the borrower fails to pay within 3 months of receiving this notice.
        (ii) Interest in Arrears: If the borrower is 2 or more months behind on interest payments, the power of sale becomes exercisable. Since monthly mortgage payments usually include interest, missing two payments would typically meet this condition. OR
        (iii)breach of Non-Payment Terms (other than covenant to pay mortgage money or interest): If the borrower violates any other term of the mortgage (such as failing to insure or maintain the property), the lender may exercise the power of sale based on this breach.
    - - Before proceeding with the sale, the lender must verify that the conditions for the power of sale have been met. However, a buyer only needs to check that the power of sale exists and has arisen (not that it’s exercisable)
      - Purpose and Method of Sale:
        The main purpose of the sale is for the lender to recover the debt secured against the property. The lender can decide on the timing and method of sale—either through private negotiations (often with an agent) or at auction. However, they must:
        1. Act in Good Faith:
        The lender must conduct the sale honestly and without taking advantage of the borrower, meaning they cannot sell the property below market value by rushing it to sale at a discounted price.
        2, Take Reasonable Care to Obtain True Market Value:
        The lender must make an effort to sell the property at its true market value at the time of sale. While they don’t have to delay the sale to get the highest price, they should properly advertise and expose the property to the market to get a fair price
      - Equity of Redemption:
        This is the borrower’s right to reclaim the property once the debt is repaid. If the property’s sale price exceeds the outstanding debt, the borrower is entitled to the surplus, which represents their equity of redemption
      - If the Lender Fails in Their Duty:
        If the lender does not obtain the true market value, they must pay the borrower (and other parties with an interest) the difference between the sale price and the true value. It’s onus of proof on borrower to prove that the lender breached their duty of care.
      - lender has the choice of when and how to sell (e.g. can choose to sell when downturn in martket)
    - - buyer of property from sale takes the whole estate of the borrower:
        a) Free from Lower Priority Interests: The buyer takes the property free of any estates or interests (including other mortgages) that the selling lender had priority over.
        b) Subject to Higher Priority Interests: The buyer is subject to any estates and interests that have priority over the selling lender’s mortgage. This means if there are other mortgages or charges that were registered before the selling lender’s mortgage, these will remain attached to the property.
    - - selling lender= trustee of proceeds of sale.
      - selling lender must pay: in specific order (legal hierarchy of claims )
        
        1. Redemption of Prior Mortgages: The first deduction from the proceeds is for the costs associated with redeeming any prior mortgages, meaning those that have a higher priority than the selling lender’s mortgage.
        2. Expenses of Sale: Next, the lender is entitled to recover their own expenses related to the sale process.
        3. Payment to the Lender: The lender will then take their own mortgage debt from the remaining proceeds. ( total amount that the borrower owes to the lender under the terms of the mortgage agreement at the time of the sale of the property e.g. accrued interest, late fees/charges, legal costs related to default)
        4. Equity of Redemption: Finally, any remaining balance (if there is any) must be paid to those entitled to the equity of redemption, which may include the borrower and/or any subsequent lenders who have claims on the property.
  - - - lender will only appoint receiver if property subject to mortgage is producing income (let to tenants).
        
        receiver must be appointed in writing and lender decides who
      - power to appoint must exist, have arisen and be exercisable
    - - No Power to Sell: The LPA 1925 does not grant receivers the authority to sell the property. However, the terms of the mortgage may allow for this power to be included, enabling the receiver to sell the property if necessary.
    - - R is agent of B and B is solely responsible for acts of R- This means the borrower is responsible for the actions and omissions of the receiver.
      - No Recourse Against the Lender: The borrower cannot hold the lender liable for the receiver's actions, which makes the appointment of a receiver more advantageous for lenders compared to taking possession of the property.
    - - Avoiding Conflicts of Interest: The receiver must ensure that their personal interests do not conflict with their role. For example, they cannot purchase the mortgaged property for themselves.
        
        Acting in Good Faith: The receiver must act honestly and in good faith while performing their duties.
        
        Competence: The receiver must act with reasonable competence, which can vary depending on the nature of the property. For example, in managing a farm, they should seek out trade discounts for supplies.
        
        Obtaining True Market Value: If the receiver has the power of sale, they must take reasonable care to obtain the true market value of the property at the time of sale.
        
        Value Enhancement: While not obligated, the receiver may take steps to increase the property's value, such as obtaining planning permission or finding tenants for rental income
  - - - available by application to high court once legal date for redemption has passed. process is in 2 stages:
        
        1. Foreclosure Nisi: The process typically starts with a court order known as Foreclosure Nisi, which involves calculating the amount owed. This stage often allows a redemption period (usually around six months) during which the borrower can pay off the debt to avoid foreclosure.
        2. Foreclosure Absolute: If the borrower fails to redeem the mortgage within this period, the court issues a Foreclosure Absolute. At this point, the lender legally becomes the owner of the property, and the borrower loses any remaining rights to it.
    - - It is the most severe remedy available to a lender because it completely extinguishes the borrower’s right, known as the "equity of redemption," to reclaim the property by paying off the outstanding mortgage debt. permanently removes bs rights to reclaim their property
    - - several protections exist to safeguard borrowers and limit the impact of foreclosure:
        
        courts discretion to re-open foreclosure
        
        This option provides borrowers with an opportunity to present special circumstances to the court that may justify reopening the case.
        
        adjournment of proceedings for dwellings
        
        This may grant the borrower more time to settle the debt, helping avoid foreclosure.
        
        Judicial Sale to Preserve Equity of Redemption
        
        a borrower or any party (e.g. other mortgagee) with an interest in the equity of redemption can apply to the court for a judicial sale. This type of sale allows the property to be sold, and the proceeds from the sale are used to pay off the debt. Importantly, a judicial sale preserves the borrower’s equity of redemption, meaning that any surplus from the sale after paying off the lender’s debt and costs would return to the borrower.