Class notes
Residential Mortgages - Detailed
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Combine with the revised Residential Mortgages lecture of mine.
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Lecture 9: Residential Mortgages:[1] Protection of Borrowers:
Role of consent in mortgage contracts
Breach of MCOB
Ability of the lender to vary the interest rates during the life of mortgage
Conducting a fairness assessment
[2] Freedom of contract and lending:
Freedom of contract is a fundamental policy governing lending contracts = if you
have capacity and freely accept obligations must be held to those obligation if quality
of consent is flawed should be able to set aside those obligations.
Notion that those with capacity who freely accept obligations should be held to those
obligations
Where the quality of the consent is defective then those obligations can be avoided
[3] Mortgage finance & co-ownership:
Couple buying a home together = typical mortgage transaction
[4] The “Surety” Mortgage:
A couple jointly own their home
One spouse has a business that requires finance and arranges a loan that is secured on
the family loan = used straight to the business [risks!!]
Requires consent from the other spouse but the risk is that the consent is not freely
given – question, “what remedy may be available here?”
o Contract could be set aside (potentially)
[5] Procedural Fairness & Mortgages:
Common law:
o Non est factum
duress
Equity:
o Misrepresentation
o Unconscionable bargain
o Undue influence
1. Misrepresentation
2. Unconscionable bargain
3. Undue influence
A comprehensive definition of undue influence [UI] is elusive = no objective
definition
At its core, is the use of improper pressure or influence, which effectively deprives a
party of his or her free independent will.
UI takes two broad forms (BCCI v Aboody RBS v Etridge)
1. Actual: overt acts exert improper pressure = a threat, over powered the will actual
undue influenced
2. Presumed: certain relationships give rise to a presumption
a. Certain type of relationship e.g., doctor-patient, solicitor-client, parent-
child [what is the common theme? Legal obligation]
, Recognised the relationship is one where there is an imbalance,
you have one person is in a position of power and other is in the
weaker position putting their trust and confidence into the stronger
patient.
No husband-wife – we don’t presume UI may arise by virtue of
that kinship
o Assumption of equality do not assume when in a couple one
is in a weaker quality than the other.
b. A relationship of trust and confidence & transaction calls for explanation
The typical relationship like h-w may not give rise to assumption
of UI if on the facts one party puts all trust in the other one party is
at mercy of the others. On that type of relationship where it is more
likely solicitor-client in that scenario on the facts we can establish
that UI may be presumed to arise.
Important point = not automatically arises, must be established on
the facts of that relationship.
Barclays Bank v O’Brien [1993]:
Facts:
o Husband’s business was under pressure, arranged to re-mortgage the family
home [jointly owned]
o Husband told Wife the loan was a bridging loan of £60K for 3 weeks
o At no stage did the branch explain effects of the documents which Wife signed
o Wife sought to set aside the transaction against the bank
If a home is jointly owned two people are joint owners consent must
get consent off both parties.
Told the wife different, misrepresented the facts of the loan it will be
there for years as its terms
No stage did the bank explain to her the documents in front of her. She
signed the mortgage application forms assuming it was for a bridging
loan. When this failed, the bank wants to take possession off the family
home for the debt.
Wife = did not give free consent to enter this, husband misrepresented
the facts to her
HOL:
Endorsed the categories set out of UI:
o Presumption of UI can arise automatically but also arise
on the facts of that relationship.
o Court accepted she had been misrepresented about key
terms of agreement; the bank HAD NOTICE OF THIS
RISK.
o Bank noticed there was a risk of transaction that
husband might misrepresent the terms of agreement
o Look at nature of transaction, not a usual transaction
here all the benefit is towards the husband’s business
unusual mixed commercial transaction
o Bank should have put an enquiry should have been alert
to the risk her, should’ve taken reasonable steps to
understanding the loan.
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