Mortgages and Exam Prep
Mortgages - Last Session
Today's session concludes the discussion on mortgages, focusing on mortgagee sales and responsibilities. The session also aims to provide guidance on exam expectations, including a review of previous exam questions.
Exam Preparation
To prepare for the exam:
Utilize tutor-led "Ask Many Things" sessions.
Attend the revision session on the 6th.
Participate in specific MPI sessions.
These resources offer opportunities to practice answering assignment and exam-style questions.
Right to Possession and Sale
The mortgagee (lender) has the power to enter into possession, but this must be done in an orderly manner, negotiating with the mortgagor (borrower). Mortgagee sale is considered the last resort. The mortgagor retains the right to redeem the property until the final point.
Relevant sections in the PLA govern these processes. The law includes steps to allow the mortgagor time to repay their debt before a mortgagee sale is triggered.
Notice Requirements
Several sections in the PLA detail the steps for mortgagee sales, including:
Giving notice (e.g., twenty days, which was temporarily doubled to forty days during COVID).
Specifying the consequences of default, including the mortgagor losing title.
Serving notice to all parties with an interest in the land (other mortgagees, covenanters, etc.) as per Section 121.
Conditional Sale
Section 124 addresses conditional sales. The mortgagee can negotiate a sale agreement with a potential buyer, conditional on the mortgagor's default. This speeds up the sale process.
Mortgagee Sale Options
A mortgagee can sell the property through three main options:
Private sale (most common).
Sale through the registrar.
Sale via court order.
Private Sale
The private sale is typically the quickest and cheapest method. However, the mortgagee (bank) cannot purchase the property themselves to avoid conflicts of interest and clogs on the equity of redemption.
Effect of Mortgagee Sale
The mortgagee sale vests the estate in the purchaser, free from the mortgage liability. However, interests with priority over the mortgage (e.g., covenants, easements) remain. The new owner obtains a clean title, and the previous owner loses any rights to buy back the property.
Distribution of Funds
If the sale does not cover the full debt, the mortgagor remains liable for the remaining amount. If the sale generates surplus funds, they are distributed in the following order:
Taxes owed to the state.
Prior mortgages.
The mortgagee conducting the sale.
Subsequent mortgages.
The mortgagor.
The case Apple Fields highlights the mortgagee's obligation to act in good faith and obtain the best deal for all parties, not just covering their own debt. Without this obligation, mortgagees might prioritize their own interests over those of subsequent mortgagees and the mortgagor.
You can comply with notifying obligations and complying with the rules of the game but you don't have to re-advertise because you thought it would be more. You don't have to wait more than the original agreement. If it was valued at $1,000,000 and got $100,000 there is something wrong.
If gaps are not as obvious as for example valued as $1,000,000 six months ago but due to some issue you only got $800,000 that is just acceptable.
Multiple mortgages on the same property are possible. The order of satisfaction is based on historical priority. The mortgagee initiating the sale must satisfy prior debts before their own. It is possible that the mortgages exceed the value but here the value is enough to pay the debt. It is not always about the price but other factors play a role in determining if the mortgagee followed the rules.
Duty of Care of the Mortgagee
The mortgagee has a duty of reasonable care under Section 176 to obtain the best price reasonably obtainable at the time of sale. The case Apple Fields examines what constitutes the best price and when this obligation begins.
Apple Fields Case
Apple Fields involved an orchard subject to first mortgage to Damage and a second mortgage to ANZ. Applefields tried to subdivide but got financial difficulties. The rezoning would have enhanced the value of the land.
Applefields try to sell the property but needed shareholder approval. Plan A was drafted where Danish Assignment, wanted to sell to Parshelf just over to satisfy the debts owed by Apple Fields. Additional to that an agreement with ANZ, agreeing to transfer the debt owed to them for from Kasha. ANZ wanted to get rid of it, they settle for way less and the debt was more than $13,000,000$. Plan B- Danish agreed to exercise the power of sale sold property to Partial for no shareholder approval was needed.
Shareholders didn't agree on Plan A so Plan B damage triggered it, triggered everything quickly as everyone thought and gave effect to Plan B Damage Contract. The property was sold for million and almost went to Dalmatj and went to the partnership to satisfy the debt and the deal of ANZ for millions. Apple Fields benefitted almost $8,000,000$ with that deal and leftovers but they thought it was too little. Not only that but that Damage tried to move around their obligation or having a clog on the mortgage by one of the mortgages having a stake in Damage.
The High Court found that Damasch had complied with all obligations. The Court of Appeal said a mortgagee contemplating a sale can decide when to sell and only then become subject to the duty of care.
The High Court's arguments included:
Damasch did not engage in deceiving conduct
The two-step approach was reasonable to try get the best price
Damasch pushed ahead speedily in Plan B
The real value of the sale goes beyond just the price and includes the benefits to the other stakeholders such as Damasch, it also includes debts relieved for Applefields as they gain $8,000,000 in debt relief.
The best price concept aims to protect those to whom duties are owed, arising from the absence of incentives for the mortgagee to obtain full property value beyond the mortgage debt. The appeal was dismissed.
Lord Templeman on Mortgages
A mortgage is a security for the repayment of a debt. It ensures performance of the obligation by the mortgagor.
The personal covenant to repay the money is separate. The security gives the mortgagee the power of sale.
The mortgage is only a mortgage, as the mortgagor has equity of redemption and there is no clogging on the equity of redemption. The mortgagee's obligation to act in good faith is also an important aspect.
The mortgagee's powers may be exercised even if the consequences are disadvantageous to the borrower. All of these parts create a strike a balance for mortgager and mortgagee. Even in the last step of the selling there are still in place checks and balances.
Exam Information
The test is still being assessed internally and externally.
Kushbu will ask two questions worth fifty marks including sub-section and some of them will be essay-like.
Three questions will come and there will be and three questions worth fifty marks. A more complex scenario, an easier case scenario and a short essay question. It helps you to cover more basis if one area is difficult.
The test occurs on Friday the thirteenth with plenty of time to complete the assessment. Time is specifically created to cover all the questions and look through more than once.
Main Topics to Review
Easements
Covenants
Leases
Mortgages
I will usually not mix those topics into one topic with the exception of some cases, for example the cases on mortgage where the mortgage covers leases.
Legal Analysis
Include statute law, case law, instruments (facts), and to what degree does extrinsic evidence affect the interpretation of instruments?
Elements for Exam Success
Clear introduction.
Identifying the issues.
Linking paragraphs together.
Using legal language accurately.
Comparing and contrasting cases.
Justifying arguments with facts.
Addressing insufficient facts.
Demonstrating understanding of the law.
Answering the question asked.
Ensure concise and relevant responses.
If using AI it is not as great as you might believe it is. Secondly it might have a violation in terms of university academic integrity. Key is to draw connections and contextualize the different parts to be successful in the exam.
Previous Exams Review
2022 Exam Question on Mortgage
Oscar purchased a fifty-year lease of a market garden with a $100,000 loan from Samir Evergreen, secured by a legal mortgage. Interest was set at 10% above the bank base rate. The mortgage deed restricted redemption for twenty-five years, and Oscar was obligated to offer Samir first refusal on any avocado produced at market price. Oscar now wants to redeem to obtain more favorable terms. Advise Oscar.
Legal Issues:
Postponement of right to redeem.
Interest rate and unconscionability.
Right of first refusal and collateral advantage.
If redemption happens before the twenty five years and collateral advantages ends that is all fine.
A potential argument includes bringing in Jones and Morgan put into question by Lord Phillips.
You can also argue whether the right of first refusal at market value is actually a collateral advantage. If it is fair you can sell it for the price in the open market it is no obligation involved just an offer.
2021 Easement Exam Questions
Bridey contacted to sell house and garden. Facts included a road, houses in the middle, tennis courts. and sells the house to Lucy and also allowed Lucy to store a lawn mower in the shed that was still on her property and then Lucy had a right of way from the main road to the tennis courts. Bridey conveyed the middle park of plot to Izzy and also allowed her to forge the adjacent wood for lost balls. Izzy turns it into more of an operation than the private tennis court and there is damage and instead of going with foot Izzy uses minibuses.
Advise Brady and Lucy as to what possible legal rights there are.
The question involves is the issue involving easements or leases or anything else? The question is is it licenses? The Minibuses is an issue of scope. It is important to have a deep look and what are the facts and the possible legal rights.
Easement vs Covenant Exam Essay Question
Here is again where I appreciate if they bring in case law so I can see what the knowledge is. Key point for discussion; Easement, Right over someone else's land. Covenant, free promise regarding own land.
2023 Exam Questions- Easement
Advise Billy as to her rights under the lease and her options.
Focus is, Shiva has derogated from the grant between Shiva and Billy. Bring in the rental price to make your argument. The rental price is important in term of the argument.