Cantander Bank and Mortgage - Assignment Example

? Land Law and PART A Advise to Ben as to how the Cantander bank could have a legal right to repossess and sell his home Mortgage is a debt instrument secured by a real estate property or any other form of collateral and a borrower is obligated to pay back on the basis of a predetermined set of payments. Mortgages are also known as liens against property and a borrower is required to repay the loan and interest before the property is wholly transferred to him. According to Gray, a mortgagee lends money to a mortgagor and the mortgagor is obligated to re-pay the mortgage in course of the stipulated period as well as the periodical amounts of interest specified.1 In this case, Cantander Bank is the mortgagee while Ben and Ali are the mortgagors. In order to acquire Valiant Villa, Ben and Ali agreed to approach Cantander bank to negotiate for a mortgage worth ? 125,000. Notably, Ben and Ali are freehold owners of the property. As such, this form of mortgage is an equitable mortgage since it is created after the legal owners of the property negotiated an instrument with Cantander bank that demonstrates a binding intention to create a security in favor of the mortgagee as opposed to legal mortgage where the mortgagee remains the legal owner of the property. However, Ali who is a model scout and agent was later on entered into a contractual agreement with Cait Miss- a high profile model where Ali agreed to fund her travel commitments, provide her with personal assistants and manage her portfolio work. The entire cost for this work was worth ? 110,000. Ali unduly influenced Ben to signed mortgage forms that lead to release of some security in Valiant Villa to cover the costs. Ideally, not all mortgages are utilized to buy property. As in this case, it is apparent that Ali who also worked as a model scout and agent committed himself to fund Cait. However, since Ali had no sufficient money, he decided to use his right to the villa to take a mortgage with Cantander bank. According to the common law, Cantander bank has the right to repossess Valliant Villa in the event that any liability within which joint owners are liable is not honored. In National Westminster Bank v Skelton (1993), the court held that the mortgagee has unqualified right to repossession in the event that the mortgagor defaults in mortgage repayment.2 Cantander bank has the right to repossesses the villa and either uses it to generate income or sell it to recover unpaid mortgage amounts. The mortgagee has the right to decide when to sell the property since one a property is repossessed; the bank will not be holding it in fiduciary capacity. In China and South Sea Bank Ltd v Tan Soon Gin (1989), the court held that the mortgagee was not obliged to sell the property at any particular time and was as such entitled to act in its own interest.3 Surprisingly, Ben was not fully aware of the whole deal as he thought the second mortgage was a form of mortgage repackaging. Unluckily, Cait Miss was embroiled in a drug scandal which dented her image making it difficult to continue working in the model industry. Indeed Ali’s reputation as her agent was also shattered and could no longer earn revenues to cover mortgage repayments. Cantander bank is now seeking repossession of Valiant Villa which has indeed caught Ben unaware. Ben should understand that mortgage as a contact is primarily based on contract law in regard to formation, terms and termination. As such, a mortgage differs from an ordinary loan since the mortgagee has equal rights to the property as the mortgagor. A mortgage has a proprietary interest since a mortgagee has rights over the property and can therefore take possession of that property in the event of non compliance to the repayment schedule agreed. Ben should be aware that Cantander bank has right to repossess Valiant Villa as governed by section 85 of the Law of Property Act (LPA) 1925 and in common law and rights of sale under statute.4 In addition, it is clear that Ben signed the documents for the second mortgage and since the bank cannot extend liability to Cait miss, the liability for non compliance should therefore be borne by both Ali and Ben who are the joint owners of the Valliant Villa. However, under section 15 of the Trust of Land and Appointment of Trustee Act 1996, the mortgagee has the capacity to force a sale of the property despite Ben’s innocence in regard to the second mortgage.5 In Parker-Tweedale v Dunbar Bank Plc (1991), the court held that the mortgagee has no independent duty of care to the owners of the property after repossession and as such enjoys full rights which are exercisable without any obligation.6 Further, section 15(1) (d) of Trust of Land and Appointment of Trustee Act 1996 stipulates matters which a court can have regard to in determining an application for property repossession. In applying the equitable principle, the court looks upon as done what needed to have been done in order to grant rights in specific performance to the contracting parties in line with Walsh v Lonsdale case (1882).7 In this case, the judge held that the mortgagee must have advanced money to the mortgagor and as such the contract was enforceable. With Ben having signed the second mortgage documents, the bank is able to recover unencumbered title to the Villa in the event of failure to make the agreed mortgage repayments. Notably, Ben and Ali continue to repay the mortgage on the basis of the initial amount borrowed. However, with the addition of ? 110,000, the borrowers could enter into another agreement with the bank to be allowed first to clear the initial amount borrowed after which Ali; the borrower of the second mortgage can negotiate how to repay the second mortgage.8 However, if Ben declines to participate in repayment of the second mortgage, then it means Ali could be forced to make the payment alone. As mentioned earlier, Ali was to rely on income earned by acting as Cait’s agent to repay the second mortgage. However, due to the issue of drug scandal, this may no longer be possible. This means Ali will encounter financial challenges and may not be able to make the repayments as scheduled (Panesar, 2001). In this respect, the bank has a legal right to repossess the Villa since both joint owners had assented to the second mortgage. Advise to Ben whether he could rely upon the defense of undue influence in order to prevent this repossession Undue influence is reminiscent in written contracts. It involves the state of mind of an individual when assenting to a given contract. Freedom of will at the time of contract is very critical to the validity of the contract. However, if the contract is obtained by undue influence, then the document stands invalid in the eyes of the contract law theory. In Barclays Bank plc v O'Brien [1993], the wife was involved in a charge on a family home that was meant to secure husband’s business borrowing.9 However, the husband was found to have misrepresented to her the effect of the deed and the bank was aware that she could decline to sign the deed. The court held the charge was not enforceable since the bank was under constructive notice and ought to have known the undue influence on the part of the husband. The judge went further and stated the security was obtained by undue influence and misrepresentation. Therefore, within the conceptual framework of contract law, the contract cannot be valid unless there is a consensus between the parties involved. The concept of undue influence is a means of policing unfair agreements that are effected through unfair means. According to Riddall, common law of duress is taken as corollaries of law of crime and tort.10 In Williams & Glyn’s Bank v Boland [1981], Mr. Boland was the sole registered proprietor of a matrimonial home and Mrs. Boland had contributed substantially to the purchase price and mortgage payments giving her a beneficial interest in the house.11 Mr. Boland mortgaged the house and was later unable to make the payment. The bank sought repossession of the property and Mrs. Boland claimed an overriding interest under section 70(1) (g) of Land Registration Act 1925. The court held the wife’s beneficial interest was actually overriding by virtual of actual occupation rendering the bank’s action of repossession unsuccessful. The British courts seek to protect individual like Ben who suffered weakness due to improper persuasion by Ali who exercised undue persuasion. Ali through his accountant unfairly persuaded Ben to sign second mortgage documents without clear understanding that it was a loan to fund Cait Miss in her high profile model campaigns. The court held that to a large extent, undue influence as a wrong perpetrated by interfering with other person’s will.12 In Royal Bank of Scotland plc v Etridge (No 2) [2001], in eight joined appeals homeowners had mortgaged their property to a bank for the sake of securing a loan used by a husband to finance his sole business which the wife did not directly benefit. The business later on failed and the wife alleged to have been unduly influenced to assent the security agreement. The court held that the security should be voided to the extent of home’s equity and as such the houses could not be repossessed. In the same respect, the house of lords held that banks to have valid security interest in such cases, they must make sure their customers have independent legal advice and if the transaction involves two people, where a loan is used for the benefit of one person the bank should put on inquiry the risk of misrepresentation and undue influence. Similar to this view, despite Ben signing the second mortgage forms, he had consistently dismissed Ali’s work by encouraging her to find a real job other than that of acting as a model scout and agent. This is a clear indication that Ben at no time did he support Ali’s work as a scout and model agency and as such, could not have agreed to sign a mortgage to finance that particular work. In this vein, the test of undue influence was measured by presence or absence of free will meaning that where individual’s will is overturned, then the net result is inequity which must should be guarded against through a legal process.13 The court must therefore remain steadfast in the event one party takes out a mortgage without informed consent or knowledge of the other party. The common law contains legal provisions relating to undue influence or misrepresentation in respect of creation of a contract as the ground under which such contract can be set aside. Judicial precedence indicates that where one party for instance the case of Ali and Ben where Ali knowingly unduly influences Ben to sign a second mortgage, such act constitutes a severance of joint tenancy. In such a case, mortgagees can only repossess a property to an extent owned by the partner who obtained the mortgage. For instance in Abbey National v Moss (1994), a daughter borrowed money by a mortgage over a property which a mother had transferred under both the daughter and herself.14 When the mortgagee sought to enforce its rights following the daughter inability to repay the amount borrowed, it was held that there was a collateral purpose in the purchase of the property to the effect that the mother was to live there in the course of her lifetime and as such, the daughter could not grant the mortgagee a right to the property beyond the rights she held. Nevertheless, the British courts continue to be worried that some individuals who may have entered into bad bargains could later claim to have been unfairly induced into a bad contract through undue influence and deception. However, if an individual can prove beyond doubt that the contact was actually a misrepresentation; such a person can seek rescission to the contract under the doctrine of misrepresentation or fraud. A good contract is guided by the legal concepts of undue influence and duress. Under the confines of contract law, any contractual agreement which is entered into on the basis of undue influence or duress stands as null and void.15 In Massey v Massey [1995], the plaintiff was unduly influenced through defective advice and the court held the contract as null and void.16 Having this in mind, Ben can institute a legal proceeding against Ali and Cantander Bank. Ideally, Ben was unduly influenced by Ali through her accountant and without full knowledge signed documents that later turned out to be second mortgage for financing Cait Miss modeling work that was secured by the villa. PART B The competing rights and responsibilities evident in the problem scenario In the above scenario, various competing rights and responsibilities are evident. To start with, both Ben and Ali had equal rights to the Valliant Villa having paid the initial installment together and following their agreement to pay the mortgages interest from a joint account. However, Ali seems to be faced with competing rights by his action of using the jointly owned property as security to unduly source for extra funds to finance his individual business. Notably, Ben is opposed to his work of acting as a scout and agent to high profile models, but regardless of his opposition, Ali goes ahead and uses the same property that he enjoys half ownership to borrow more funds from the bank.17 Ali has right to the jointly owned villa while at the same time enjoys rights to conduct his own businesses. However, it is unfair to commit the joint property for own businesses without express authority from the joint partner. This is evident where Ben is unduly influenced to sign the second mortgage form and was not explained the purposed for sourcing the extra funds. According to Ben, the second mortgage was to repackage the initial mortgage taken, and only realizes the intent Ali had when the bank issues a notice of repossessing the property following Ali’s inability to pay the mortgage interest for the second loan after Cait was involved in a drug scandal and could no longer perform as a model meaning the incomes could not be sustained. Both the joint partners have right to information concerning the jointly owned property. However, Ali is unable to sustain this form of right considering that he also have his own interests which seem to compete with those entitled to the joint partner. As noticed, Ali uses her accountant to deceive Ben on the purpose of the second mortgage after realizing Ben was opposed to his other business. Ben is advised that the success of the Villa is hinged on his cooperation as a joint partner whereas the intent was not all about the success, but to make him assent to the second mortgage. Ali is seen to have kept the whole information concerning the second mortgages a secret to Ben and could have been making the installment payments secretly since Ben comes to learn about it after the scandalous acts of Cait. Ideally, people choose to own property individually for the sake of their privacy. However, with joint ownership, the element of privacy is no longer tenable as it can be observed with Ben. Ben could have used his resources to acquire a villa as his family dwelling place. As such, he must have proceeded and purchased some personal effects for family use. However, all his efforts are put in limbo by the joint partner Ali who unduly influences Ben to assent to the second mortgage. In this vein Ben must have been faced by competing rights to privacy and that of owning a villa.18 However, since he may not have had enough finances to purchase the villa individually, he chose to team up with Ali in order to pool resources together and take a mortgages foe the remaining balance which they were to assist each other in settling. The plan did not work as Ben may have initially though since Ali had some competing interest tearing between the jointly owned property and his personal modeling business. Moral rights are the guiding principles that enable humans to coexist together. This is because they govern individual to do as they could expect other to do for them.19 Ideally when Ali and Ben come together to pool resources that could enable them purchase the Villa, they were guided by moral principles. However, at some point Ali’s moral rights are challenged by his personal interests.20 As much as he would have wanted to finance his personal modeling business, he could have done so bearing in mind that his actions do not affect his joint partner adversely. Nevertheless, this was not the case as Ali is seen to be determined to unduly influence Ben to authorize the second mortgage secured on the jointly owned villa without explicitly bringing to Ben attention the purpose of the second mortgage. Ali, Ben and Cantander bank enjoys legal rights to the villa. This is because Ali and Ben are the joint owners of the villa and cantander bank have advanced them money secured on the Villa to enable pay the remaining amount and also enable the partners meet their other financial obligations. However, the legal rights enjoyed by both partners are seen to be competing with partners self interests. This is evident where Ali disregards Ben legal right to the property and went ahead to acquire additional finances through the second mortgage to finance his personal interests. On the other hand, all the three parties are held responsible. First, the bank must be responsible to both Ben and Ali by advancing the joint owners funds as per the mortgage agreement and also accepts to receive installment payments as agreed. Similarly, both Ali and Ben are responsible for paying the mortgage installments as stipulated in the mortgage agreement. However, this responsibility was not honored at some point following application of the second mortgage whose payment relied upon Cait’s performances. Here, the competing responsibility is Ali’s commitment to finance Cait’s modeling shows where he could earn revenues to utilize in mortgage repayment. In the same case Ali was equally responsible in ensuring the second mortgage advance was repaid as stipulated in the agreement.21 However, following the drug scandal that faced Cait, the modeling work could no longer generate revenues which on the other hand prevented Ali to pay the second mortgage as earlier agreed resulting to loss of Valliant Villa. Both Ali and Ben should bear fair representation for each other. However, due to competing interest on the part of Ali and after realizing Ben objection to his modeling work, Ali results to undue influence in order to get Ben sign the second mortgage documents. This act is not in good faith and leads both Ali and Ben on the verge of losing the Villa when Ali becomes unable to repay the installments. Ideally, had Ali fairly presented his case for the second mortgages to Ben and then the two agrees on the modalities of installment payment, then there could have been a way through following the scandalous act by Cait. However, the unfair representation on the part of Ali catches Ben by surprise as the bank issues notice for Villa repossession. All the three parties are entitled to right to fair treatment on individual’s part and on the part of the other party. In Cheltenham & Gloucester Building Society v Norgan (1997), the court held that the bank should fairly treat the borrowers by issuing a reasonable notice for repossession in the event of default in payment.22 The bank should fairly treat the joint owners by giving them the mortgage facilities at both favorable and flexible rates. On the other hand, the joint owner should also treat the bank fairly by repaying the mortgage and mortgage interest as agreed and within the stipulated timeline. Similarly, the joint owners are also entitled to fair treatment. However, the self interests on the part of Ali results to unfair treatment to Ben who is now faced with the risk of not only losing the villa, but also house effects. Additionally, the bank may also not have treated Ben fairly by repossessing both the villa and his house effects considering that he was unduly influenced to assent to the second mortgage which was solely meant to fund Ali’s personal business. Therefore, every party is charged with the responsibility of according fair treatment to the other party, but due to individual interests, these responsibilities are not fully observed leading to unfair treatment of some parties. Consider the existence of an interest in the family home affects and the potential outcome for Ben Ideally, Cantender bank has a powerful remedy of repossessing the villa in the event of major default by the mortgagee. As such, the apparent default in payment of mortgage by Ben places Cantander bank at no option other than laying a claim on the villa.23 Based on the mortgage contract, the bank may seek the remedy of foreclosure which will see it extinguish the equity of redemption leading to legal transfer of the villa from mortgagee (Ben) to mortgagor (Cantander Bank). Undoubtedly, the second mortgage was purposely meant to fund Ali’s personal business and Ben was unduly influenced to assent to the mortgage. In this vein, his signatures could have made him liable for the second mortgage, but Ben is protected from losing the property to the bank by section 36 of the Administration of Justice Act 1970 which states that the court may exercise its orders if it appears the mortgagee is likely to pay the remaining sum or remedy the default within a period of six months.24 However, foreclosure nisi order will extinguish Ben’s interest if he fails to clear the mortgage balance within the extended period. Had Ali applied for the second mortgage alone without involving Ben and based on his share of the joint owned villa, then Ben could have been let outside the hook since the second mortgage could only apply to the percentage of ownership held by Ali.25 Ben could only escape from losing his home affects if he succeeds in appealing for undue influence by Ali. Nevertheless, in line with Campbell v. Holy land (1877), the court may opt to re-open the foreclosure and allow Ben to pay the mortgage balance at a later date. Books Mattei U, Basic Principles of Property Law (Greenwood Press 2000) Panesar S, General Principles of Property Law (Longman 2001) Riddall G, Land Law (Lexis Nexis 2003) Smith R, Property Law (5thEdition, Pearson Longman 2006) Gray K, Elements of Land Law (Butterworths 1993) Acts Administration of Justice Act 1970 s36 Law of Property Act (LPA) 1925, s 85 Trust of Land and Appointment of Trustee Act 1996, s15 (1) (d) Case Laws Abbey National v Moss [1994] FLR 307 (CA) Barclays Bank plc v O'Brien [1993] UKHL 6 Campbell v. Holyland (1877) 7 Ch.D. 166 Cheltenham & Gloucester Building Society v Krausz [1997] 1 All ER 21. [CA] China & South Sea Bank Ltd v Tan Soon Gin [1989] 3 All E.R. 839. Massey v Massey [1995] 1 All ER 929 (CA) NationalWestminster Bank v Skelton [1993] 1 All ER 242. [CA] Parker-Tweedale v Dunbar Bank plc [1991] Ch 12, CA Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44 Walsh v Lonsdale (1882) 21 Ch D 9 Williams & Glyn’s Bank v Boland [1981] AC 487 Journals Carby, H (1999) ‘Transfer of undertakings in the United Kingdom’ 41Managerial Law 2, 69. Guarneri, C (2000) ‘Land Reform and Working-Class Experience in Britain and the United States’ 20 Journal of the Early Republic 1, 176. Fisher, L (2006) ‘Renegotiation in the Common Law Mortgage and the Impact of Equitable Redemption’ 32 Journal of Real Estate Finance and Economics 1, 82. Bermant, G and Braucher, J (2006) ‘Making Post-Petition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy’ 80 The American Bankruptcy Law Journal 2, 261. Guohua, S (2006) ‘On the Amendment and Perfection of Legislation of Mortgage’ (2010) 3 Journal of Politics and Law 1, 116. Howcroft, B (1993) ‘Mortgage Securitisation: Legal Aspects’ (1993) 13 The Service Industries Journal 2, 178. Carswell, A and Bachtel, D (2006) ‘Mortgage Fraud: A Risk Factor Analysis of Affected Communities’52 Crime Law and Social Change 4, 347. McCoy, P (2007) ‘The Home Mortgage Disclosure Act: A Synopsis and Recent Legislative History’ 29 The Journal of Real Estate Research 4, 381. Read More