Why does the lender get certain rights when the borrower defaults?
Because they have a legal charge within the land registry.
What are the features of a second mortgage?
- First mortgage has the first charge and normally the title deed.
- If the borrower defaults the first mortgage can claim first.
- They’re greater risk of not recovering the capital. Higher interest rates.
How many legal owners can there be on a property?
4.
What is Joint Tenancy?
Where each person owns 100% and all parties are individually responsible for the debt.
What is Tenancy in common?
Where one person dies, the title passes to the survivor and a formal arrangement where the ownership is split.
What is the restriction put in place with tenancy in common?
It prevents either owner from selling without agreement of the other.
What is meant by freehold?
- The closest to having complete ownership
- You have the right to leave the property to whoever upon death
What is meant by flying freehold?
When part of a freehold property extends above or below another persons property.
What is meant by leasehold?
- Normally flat, a less permanent form of tenure
- Freeholder owns the land and leases it out (90-990 years)
- Ground rent is paid by the leaseholder to the freeholder
What is meant by ‘the reversionary interest’?
Where at the end of the lease the land and the property will always revert back to the freeholder.
How many years do lenders require on a lease?
At least 55-65 years left on the lease after the mortgage term.
What is meant by Forfeiture?
Where the lease terms aren’t complied with and the lease could be terminated with the property reverting to the freeholder. The lender looses the security in this instance.
How do lenders combat Forfeiture?
Insist a clause in the mortgage deed and insurance.
What is commonhold designed to do?
Enable leaseholders to either buy the freehold or be able to extend the lease.
What is the criteria for buying the freehold?
- Qualifying tenant test = original lease was more than 21 years.
- Qualifying building test = 2/3 flats must be on a long lease and max 25% of building must be for commercial use.
- Majority participation test = 50% of leaseholders in the block must agree.
What are the features of extending the lease?
- Can extend by a further 90 days.
- Freeholder cannot refuse the application but is entitled to receive payment.
What is commonhold?
Where they’re looking to acquire ownership of the whole block = multi-unit.
To agree commonhold who must be in accordance?
All the leaseholders in the block and the freeholder.
What document sets out the rights for commonhold?
Memorandum and articles of association.
What are the disadvantages of commonhold?
It is hard to obtain a mortgage and to get everyone to agree.
