Remedies Available to Liam if the Loan is Not Paid

This study focuses on the remedies available to Liam if the loan taken by Jeremy is not paid and suggestions to help Kenneth avoid liability under the mortgage.

Law
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Table of Contents
Introduction................................................................................................................................3
Remedies Available to Liam if the Loan is Not Paid.................................................................3
Different Ways to Avoid Liability under the Mortgage.............................................................5
Conclusion..................................................................................................................................7
Bibliography...............................................................................................................................8
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Introduction
A mortgage loan is an amount of money that is taken mostly for the purpose of purchasing a
property such as land or a building. The amount can be taken for both short as well as longer
duration. In this context, most loans run for the duration of the 25 years. However, it is
observed that the loan taken is “secured against the value of your home until it’s paid off”1.
Thus, in the given case study, Jeremy and Kenneth possess their father’s house and are the
joint proprietors. It has been observed that Jeremy has been facing some difficulties with
respect to his business of renting cars. On the other hand, Kenneth is a lecturer at the local
college. Jeremy decides on taking a loan, however, he has poor credit and has been unable to
get loans from the larger banks. Thus, he decides to take a loan of £100,000 from Liam, who
is a second-hand car dealer for which he puts his and Kenneth’s house as a mortgage. Later,
Kenneth finds that Jeremy is still facing difficulties with his business. In addition, he
overhears Jeremy booking a one-way ticket to Brazil. Taking into consideration, this case, the
study focuses on two main questions regarding the remedies that are available to Liam if the
loan taken by Jeremy is not paid. In addition, it also focuses on suggestions that can help
Kenneth to avoid liability under the mortgage, if Jeremy leaves for Brazil without paying the
loan borrowed from Liam. The study will thus focus on including British law with respect to
the case.
Remedies Available to Liam if the Loan is Not Paid
Since Liam is the lender, in this case, there are some rights that he can possess against the
borrower i.e. Jeremy. This is mainly due to the fact that Jeremy has taken a loan by putting
the house owned by him and his brother, Kenneth, on the mortgage. Thus, Liam has the right
1The Money Advice Service, ‘Mortgages – A Beginner’s Guide’ (Menu, No Date)
<https://www.moneyadviceservice.org.uk/en/articles/mortgages-a-beginners-guide> accessed 8 January 2019
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to possess the house, as they have signed a contract2. In addition, the lender has the right to
take legal actions in lieu of the breach of the contract in order to recover money that he/she
owes. Thus, this further allows the lenders to take the possession of the property, which has
been mortgaged for taking the loan. However, as per Section 8 of the Limitation Act 1980, it
states about the “Time limit for actions on a specialty”3. This Section further states “An action
upon a specialty shall not be brought after the expiration of twelve years from the date on
which the cause of action accrued”. In addition, it further mentions that “Subsection (1)
above shall not affect any action for which a shorter period of limitation is prescribed by any
other provision of this Act”4.
A lender mainly focuses on taking a lawful mortgage on a property of significant value. This
is because it gives him or her best security if the borrower fails to pay back the amount of
loan taken5. Thus, Liam has signed a mutual contract with Kenneth and Jeremy for
possessing the house, in case they fail to pay back the loan amount. This is one of the most
common remedies for Liam to obtain the money that he borrowed. Another remedy, which
Liam is entitled, is to sell the house if the amount that he borrowed is paid back on time or
unable to pay. This is mainly due to the fact that not being able to pay back can be considered
to be a breach of contract. Hence, Liam can take the court to the case with respect to selling
the house for which the loan has been mortgaged upon. However, it is to be noted that the
right to sell the property can only be done if the court allows it6. For instance, in the case
2Dot Zinc Limited, ‘What Happens If You are Unable to Pay Back Your Loan’ (Loans, 2019)
<https://www.money.co.uk/loans/what-happens-if-you-are-unable-to-pay-back-your-loan.htm> accessed 8
January 2019
3Crown, ‘Limitation Act 1980’ (Home, No Date) <https://www.legislation.gov.uk/ukpga/1980/58/section/8>
accessed 8 January 2019
4 Ibid
5Adam Pierce, Charlotte Drake and Alexander Hewitt, ‘Lending and Taking Security in the UK (England and
Wales): Overview’ (Thomson Reuters, 2019) <https://uk.practicallaw.thomsonreuters.com/4-501-3222?
transitionType=Default&contextData=(sc.Default)> accessed 8 January 2019
6Housing Law News and Comment, ‘Mortgages, Sale of Property and Human Rights’ (Home, 2008)
<https://nearlylegal.co.uk/2008/10/horsham-properties-group-ltd-v-1-paul-clark-2-carol-beech-and-gmac-rfc-
ltd-third-party-and-the-secretary-of-state-for-justice-intervener/> accessed 8 January 2019
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‘Horsham Properties v Clark & Beech (2009)’, it has been found that the lender was given
the right to sell the mortgaged property. This was done mostly on the basis of Section 101 of
the Law of Property Act 1925, which was irrespective of the Court’s order. This happened
because it did not breach Article 1 clause relating to the first protocol under the European
Convention on Human Rights7.
Different Ways to Avoid Liability under the Mortgage
The ownership transfer of a property can be done based on a specific condition so that the
entitlement can be transferred back after fulfilling the obligations. Hence, in this context, if
Kenneth can come to an agreement with respect to this particular condition. This will allow
Kenneth to get repossession of the house after paying the amount of loan to Liam8. In this
context, mortgage, liability is perceived as a debt, which must be repaid within a specific
period of time, especially for purchasing a real estate or property9. There are various ways
through which mortgage liability can be avoided. Contextually, with respect to the case of
Kenneth, the focus should be on paying off the mortgage early, as it is more sensible to do so.
One of the ways through which Kenneth can avoid mortgage liability is by reducing the
overall mortgage term. This is because shortening the timeframe to pay back the mortgage
loan will help in decreasing the interest that needs to be paid back. In addition, it can also
happen that Kenneth can remortgage a new deal with Liam10.
In addition, offsetting the mortgage can be considered to be another way, which can help
Kenneth to avoid paying liability on the mortgage amount that has been taken by his brother,
7PropertyLawUK.net Ltd, ‘Effect of Sale on Possession’ (Horsham Properties Group Ltd v Clark, No Date)?
<http://www.propertylawuk.net/mortgagesaleeffect.html> accessed 8 January 2019
8Thomson Reuters, ‘Mortgage’ (Practical Law, 2019) <https://uk.practicallaw.thomsonreuters.com/8-107-6863?
transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1> accessed 8 January
2019
9Thomson Reuters, ‘Mortgage Liability’ (Legal Forms, 2019) <https://realestate.findlaw.com/mortgages-equity-
loans/mortgage-liability.html> accessed 8 January 2019
10Tim Leonard, ‘How to Pay Off Your Mortgage Early’ (News, 2018)
<https://moneyfacts.co.uk/guides/mortgages/how-to-pay-off-your-mortgage-early/> accessed 8 January 2019
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Jeremy. Offsetting is only applicable if there is adequate money in the savings account that is
linked with the mortgage. Thus, the money, which has been held in the savings account is
offset or taken off against the balance of the mortgage. Thus, Kenneth will only be charged
with the interest relating to mortgage balance, which in turn, assists in saving the interest on
the mortgage11. Kenneth can also focus on opting for ‘mortgage protection insurance’. In this
context, there can be two options for protecting against the mortgage liability. Kenneth can
either ‘purchase protection insurance’, which mostly covers the mortgage payments or can
also opt for ‘income protection insurance’ in which the received payments can be used for a
different purpose12. One of the most crucial rights of a mortgagor, in this case, Kenneth is the
right to redeem. This allows the mortgagor to buy back the mortgage on repaying the money
taken as a loan along with its interest with respect to the mortgage13.
In this regard, the ‘right to redeem in equity’ can also be opted as the mortgage agreement
focuses on providing the lender with security for the taken loan. Thus, it is to be noted that
the lender (Liam) cannot object the borrower (Kenneth) to redeem the house, which has been
mortgaged to the loan taken. In addition, the rights of the mortgagor (Kenneth) to sue can be
affected based on the fact that the mortgaged house is subjected to the mortgagee’s (Liam’s)
right. However, this issue can be legally dealt on the basis of Section 98 of the Law of
Property Act (LPA), which will allow Kenneth for not being notified with respect to Liam’s
intention of possessing the property14.
11Tim Leonard, ‘How to Pay Off Your Mortgage Early’ (News, 2018)
<https://moneyfacts.co.uk/guides/mortgages/how-to-pay-off-your-mortgage-early/> accessed 8 January 2019
12Which, ‘What is Mortgage Protection Insurance’ (Mortgages, 2019)
<https://www.which.co.uk/money/mortgages-and-property/mortgages/what-is-mortgage-protection-insurance-
a912h5h1z67y> accessed 8 January 2019
13In Brief.co.uk, ‘Rights of the Mortgagor’ (Home, No Date) <https://www.inbrief.co.uk/property-law/rights-of-
the-mortgagor/> accessed 8 January 2019
14Ibid
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Conclusion
Having an overall understanding, it can be stated that there are some rights based on which
the mortgagee (Liam) can take possession of the mortgaged property. This can also be done
legally as per the Limitation Act 1980. On the other hand, mortgagor also has some rights
based on which Kenneth can avoid the liability on the mortgage.
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Bibliography
Websites
Adam Pierce, Charlotte Drake and Alexander Hewitt, ‘Lending and Taking Security in the
UK (England and Wales): Overview’ (Thomson Reuters, 2019)
<https://uk.practicallaw.thomsonreuters.com/4-501-3222?
transitionType=Default&contextData=(sc.Default)> accessed 8 January 2019
Crown, ‘Limitation Act 1980’ (Home, No Date)
<https://www.legislation.gov.uk/ukpga/1980/58/section/8> accessed 8 January 2019
Dot Zinc Limited, ‘What Happens If you are Unable to Pay Back Your Loan’ (Loans, 2019)
<https://www.money.co.uk/loans/what-happens-if-you-are-unable-to-pay-back-your-
loan.htm> accessed 8 January 2019
Housing Law News and Comment, ‘Mortgages, Sale of Property and Human Rights’ (Home,
2008) <https://nearlylegal.co.uk/2008/10/horsham-properties-group-ltd-v-1-paul-clark-2-
carol-beech-and-gmac-rfc-ltd-third-party-and-the-secretary-of-state-for-justice-intervener/>
accessed 8 January 2019
In Brief.co.uk, ‘Rights of the Mortgagor’ (Home, No Date)
<https://www.inbrief.co.uk/property-law/rights-of-the-mortgagor/> accessed 8 January 2019
PropertyLawUK.net Ltd, ‘Effect of Sale on Possession’ (Horsham Properties Group Ltd v
Clark, No Date)? <http://www.propertylawuk.net/mortgagesaleeffect.html> accessed 8
January 2019
Page 8

The Money Advice Service, ‘Mortgages – A Beginner’s Guide’ (Menu, No Date)
<https://www.moneyadviceservice.org.uk/en/articles/mortgages-a-beginners-guide> accessed
8 January 2019
Thomson Reuters, ‘Mortgage Liability’ (Legal Forms, 2019)
<https://realestate.findlaw.com/mortgages-equity-loans/mortgage-liability.html> accessed 8
January 2019
Thomson Reuters, ‘Mortgage’ (Practical Law, 2019)
<https://uk.practicallaw.thomsonreuters.com/8-107-6863?
transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1>
accessed 8 January 2019
Tim Leonard, ‘How to Pay off Your Mortgage Early’ (News, 2018)
<https://moneyfacts.co.uk/guides/mortgages/how-to-pay-off-your-mortgage-early/> accessed
8 January 2019
Which, ‘What is Mortgage Protection Insurance’ (Mortgages, 2019)
<https://www.which.co.uk/money/mortgages-and-property/mortgages/what-is-mortgage-
protection-insurance-a912h5h1z67y> accessed 8 January 2019
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