PROPERTY LAW ll LAWS20220/30330 2022-23

Seminar 3

Answers to Self-Testing Questions

You will find it useful to prepare answers to the following questions

prior to the seminar to test your understanding.

1. What is a mortgage and what is the correct name for a legal

mortgage (see s 1 LPA 1925)?

A mortgage is a loan by which an interest in land is given to

the lender by the borrower as security for the loan. “A
charge by way of legal mortgage” is the technical definition
in s 1(2)(c) LPA 1925

2. What is the effect of the following statutory provisions on a

mortgage:

S1 LPA 1925

This provides in S1(2)(c) that a charge by legal mortgage is a

legal interest

S52 LPA 1925

This provides that in order to be a legal mortgage it must be

created by deed

S27 LRA 2002

This in S27(2) (f) provides that in order to take effect in law

the mortgage must be registered at the land registry ie. a
mortgage is a registrable disposition.

S29 LRA 2002

This section provides that a buyer buys subject to legal

charges, everything on the register and interests that
override. The effect of this is that if a mortgage is not on
the register it will not be binding. It will not fall within any
of the paragraphs of Schedule 3 and thus cannot be an
interest that overrides.

1
PROPERTY LAW ll LAWS20220/30330 2022-23

Self-testing questions continued…

3. What are the five remedies for the mortgagee in the event
of a default by the mortgagor and which one is most
commonly exercised by mortgagees?
The five remedies are:
• Suing on the personal covenant to repay
• Foreclosure
• Sale
• Possession
• Appointment of a receiver

Sale is the most common one.

4. For each of s 101 and s 103 LPA:

Which aspect of the power of sale does it cover?

S101 LPA - When POS Arises

S103 LPA - When POS becomes exercisable

What are the conditions to be met?

S101 LPA - Mortgage must be by deed
- POS not restricted in Mortgage Deed
- Monies are due (i.e., Legal date for
redemption has passed

S103 LPA - Breach of mortgage term

- Notice has been given by the lender
requiring payment of the mortgage
money and there has been 3 months
default after service of the notice [Note
that this was far more relevant when
payment was made on demand, instead
of in monthly regular instalments.]
- Arrears of 2 months

• Need all the conditions be met?

S101 LPA – Yes

S103 LPA – No, only 1 condition must be met.
2
PROPERTY LAW ll LAWS20220/30330 2022-23

Self-testing questions continued…

5. To what extent is a purchaser from the mortgagee concerned to

check the power of sale has arisen or is exercisable (see s 104(2) LPA
1925)?

A purchaser only needs to check that the PoS has arisen (which only
requires them to check the mortgage deed); they do not need to
know whether it was exercisable (i.e. they do not need to check
into arrears).

6. When a mortgagee exercises their power of sale, what is the effect

on any prior or subsequent mortgagees (see s 104(1) LPA 1925)?

A sale is made free of subsequent mortgages, but the mortgagee

would sell subject to prior mortgages. As this would never actually
happen, it means that a second / third mortgagee must consult with
prior mortgagees and get their agreement to release the property
from the mortgage before they sell.

7. Is it true that S105 LPA states that the mortgagee is a trustee of the
power of sale and the proceeds of sale?

False - They are a trustee of the proceeds, but not of the power of
sale.

8. What is the order of distribution by a legal mortgagee of the

proceeds of any sale it completes in exercise of its power of sale
(see s 105 LPA 1925)?

(i) prior mortgages

(ii) costs of sale
(iii) paying off this mortgage
(iv) paying off any subsequent mortgages
(v) if anything left - will go to the mortgagor

3
PROPERTY LAW ll LAWS20220/30330 2022-23

Self-testing questions continued…

9. What duties does a selling mortgagee owe to the mortgagor? Are

these duties owed to any other parties? (See Parker-Tweedale v
Dunbar Bank plc (1991) Ch 12; 1990 2 AER 577.)

They owe the two duties (a) to act in good faith (subjective) and (b)
to take reasonable care to obtain the true market value (objective).
These are owed to other mortgagees and any guarantor of the
mortgagor as well as the mortgagor. They are not, however, owed
to a beneficiary under a trust of which the mortgagor is trustee.

10. Is the basis of liability for the objective duty in tort, contract or
equity?

It is an equitable duty to account – this was confirmed in Silven

Properties v RBS plc [2004] 1 WLR 99.

11. What is the effect of a sale by the mortgagee to himself or a

‘related person’? (See Tse Kwong Lam v Wong Chit Sen (1983) 1WLR,
Lord Templeman.)

The sale is voidable and so the sale can be set aside i.e. made void.
The burden of proof shifts to the mortgagee to show that they have
put the interests of the mortgagor first in exercising their duty of
reasonable care on the sale and not those of the related person.

4
PROPERTY LAW ll LAWS20220/30330 2022-23

Self-testing questions continued…

12. Does a mortgagor have any ability to influence the manner in which
the mortgagee exercises its power of sale? (See, in particular, s.
91(2) LPA 1925 and Palk v Mortgage Services Funding plc (1993)).

By s 91(2) LPA 1925, either the mortgagee or the mortgagor can

apply to court for an order that the property be sold. Therefore if
the mortgagee is delaying in the sale of the property (for example,
because there is negative equity, where the sale price would be less
than the outstanding balance due on the mortgage) the mortgagor
can apply to court that the property be sold.

13. What is the mortgagor’s remedy if they are able to prove that the
mortgagee has exercised the power of sale improperly? (See
s.104(2) LPA 1925 and especially Silven v. Royal Bank of Scotland plc
(2004) CA per Lightman J.)

The remedy is financial – it will be the difference between the sale

proceeds and the price for which the property should have been
sold. The mortgagor will not have the property returned to them –
this is set out in s 104(2) LPA 1925.