Land -> Answering Mortgagee's Remedies Q.

In order for a mortgagee to sell:

• The power of sale must have arisen (s.101 LPA) and all three requirements satisfied:

1. Notice served by the mortgagees,
2. Interest due under the mortgage is two months in arrears,
3. The mortgagors have breached some term under the mortgage deed.

• Power of sale must be exercisable (s.103 LPA) where one of the three requirements is satisfied:

1. You have given the mortgagor a notice requiring payment and the default has continued for 3 months after.
2. Some of the interest payable is at least two months in arrear.
3. There has been a breach of a covenant in the mortgage (other than non-payment) or some other provision of the LPA 1925.

A Mortgagors remedy against the mortgagee:

Mortgagee subject to two duties (Cuckmere v Mutual Finance) when selling a property also re-emphasised in Silven v Royal Bank of Scotland:

• Subjective duty - to act in good faith. In order to obtain the best price possible. Otherwise the mortgagee will find himself liable to the mortgagor if he fails to do so.
• Objective duty - to take reasonable care to obtain the “true market price” and not to unduly rush the transaction or sell at a low price that will simply cover the debt (Palk v Mortgage Service Funding). However the mortgagee is under no duty to enhance the value of a property.
  
• Mode of sale – there is no obligation to sell by auction, although the mortgagee may have a duty to seek advice on method of sale (Kwong Lam v Wong Chit Sen) but must show a proper conduct of sale and proper advertising.
• REMEDY FOR BREACH of duty is “an order to account” for the price that should have been received (Silven v RBS).

Remedy Against a purchaser

• Purchasers are only obliged to check if the power of sale has arisen.
• They are not concerned with the S.103 exercise conditions or the nature of any default.
• A purchaser may be affected if he discovers an “obvious breach” as he may not then be a purchaser in good faith (Bailey v Barnes).

Application of proceeds of sale

• S.105 LPA renders the selling mortgagee a trustee of the proceeds of sale. These must be applied in a set order.

a) any prior encumbrances (if they consent)

b) expenses of sale

c) moneys due to the selling mortgagee

d) any surplus should be paid to “the person next entitled” – i.e. a later mortgagee or, if none, the mortgagor.

Mortgagee should search the Land Registry to see if there are any registered charges. If they fails to do so then she will be personally liable to any subsequent mortgagee who has registered his interest.