STANDARD SECURITIES

STANDARD SECURITIES

statutory form of charge
1. introduced by Conveyancing Fuedal Reform (Scotland) Act 1970
  1. abolished the bond & disposition in security
  2. & ex facie absolute disposition
  3. replaced with one very simple and very flexible basic form of standard security
normally most valuable asset you can own
1. land and buildings
  1. without a mortgage beyond means of the individual
Lord Diplock - English case Pettit v Pettit
1. "that we are a real property mortgaged to a building society owning democracy"
  1. reasonably accurate statement of position in Scotland, three decades on
flexibility of 1970 Act
1. statute provides for social and economic changes
  1. take place over the life of secured loan
    1. without need of discharging loan and creating new one
2. allows debtor transfer - more economically viable agreement
  1. s14 assignation of transfer of standard security
all heritable loans since 1970 Act, constituted by standard security
1. s3 CFR(S) A 1970
  1. part 11 s9-32 contains law of standard security 1970 Act
    1. standard security either in terms of schedule 2 form A or form B 1970 Act
      1. Form A - personal obligation and details of loan are connected in standard security
        widely used by building societies
        whether form A or B Albatown Ltd v Credential Group Ltd
      2. Form B - where personal obligations and details of loan are in a separate unrecorded document
        widely used by banks in housing loans or commercial lenders
        loans in connection with trade (garahes/breweries)
        & large loans over factory/office buildings
        where parties don't wish to make details public
        Form B security- express assignation of secured debt required
        Watson v Bogue No 1
Personal bond
1. Bird v HBOS
  1. PB properly regarded as a bond of caution my/not give defenders secuirty for the loan
    1. bond of caution was irrelevant as absence of valid standard security
Deed of Variation s16
1. allows for a number of variations to be made
  1. without creditors consent
  2. used to release one of a number of original debtors from further liability
    1. or introduce a new debtor
2. utilized where a single person, owns property subject to standard security
  1. makes over one half share of property to their partner
  2. partner in turn agrees - undertake joint and several liability for the secured loan
    1. creditor will want to ensure the partner is a co-debtor to the change
      1. before consenting to the change to the original obligation
3. where couple break up
  1. one of them can take over the whole of the property
    1. assume sole respnsibilty for the loan
      1. partner can make over their share to the first and be released from any further liability
4. in either situation - a suitably worded deed of variation - easily give effect to these changes in debtor
deed of restriction
1. s15 form c&d - allows debtor to have portion of security subjects released from secuirty
  1. usually on payment of a substantial amount of the original loan
    1. useful when building company, purchase land for residential developement
      1. gives standard security to bank in security of loan, covering development costs
      2. developed plots subsequently sold to purchasers
        buidling company obtains deed of restriction for each plot when sold
        purchaser takes plot free of any debts of building company
  2. area of original security subjects will be reduced
    1. normal for company to repay its creditor - portioned amount of proceeds of sale of plot
      1. provides flexible way of securing the financing of the development
Discharge s17 purpose is 2 fold
1. 1) releases debtor from continuing personal obligation to the creditor
2. 2) releases security subjects from the burden of the standard security as a real secuirty thereon
3. short statutory form provided for is CFR(S) A 1970
  1. achieves both objectives by granting of discharge, following form F of the schedule 1970 Act
    1. recording of discharge in statutory form, the subjects are disburdened thereof
Assignation s14 (1) - duly recorded standard security may be transferred
1. whole or in part, by a creditor by assignation in conformity
  1. with Form A or B schedule 4 1970 Act.
    1. upon the tranfer being duly recorded, the security or part thereof
      1. shall be vested in the asignee as effectually as has been granted in his favour
2. (2) assignation of standard security shall except where otherwise stated
  1. deemed to convey to the grantee
    1. all rights competent to the grantor to the writs
      1. effect inter alia of vesting in the assignee
        a) full benefit of corroborative or subtantial debt obligation or part thereof
        irrespective of whether obligations are contained in any deed or arise from operation of law or other wise
        b) right to recover payment from debtor of all properly incurred expenses incurred by the creditor in connection with the security
        c) entitlement to the benefit of any notices served and all procedure instituted by the creditor in respect of the security
        effect that the grantee may proceed as if he had originally served or instituted such notices or procedures
Notice of default
1. 1970 Act gives creditor range of remedies
  1. personal action, summary diligence, poinding of the ground, adjudication
    1. removing the debtor and letting the property
  2. Scotland generally held to be 3 roads to sale
    1. 1) calling up notice s19 1970 Act, debtor once served required to pay whole of the debt within 2 months
      1. failure creditor has automatic power of sale
        1970 Act does not state circumstances justifying the service of the notice
        No problem if loan is on demand or term loan
        where there is an acceleration clause which has been activated
        loan agreement defines circumstances which amount to default
        procedure does not need to involve any court involvement
        In practice common for Creditors to obtain Action of Declarator
        the right to sell has crystallised
    2. 2)Notice of default s20 and 21 1970 Act, on default creditor serves Notice of Default, stating the default
      1. calls upon debtor to cease to be in default within one month
        failing which enforcement powers emerge. Act is not clear meaning of default
        default usually failure to make periodic payment s9(1)(b)
      2. merely requires the arrears are brought up to date
    3. 3) last - road to enforced sale by s24 warrant
      1. application by creditors to the court, stating debtor is in default, requesting permission to sell
        involves the court, rather rare to use this road
        procedure may be used where creditor wishes to sell, not as a result of failure to pay but because debtor is insolvent
        not as expensive as it might be, since creditors can prove statutory requirements have been met
        court has no discretion to refuse the warrant
        missives concluded in normal way, no moveables included, disposition granted by creditors
        s26 1970 Act provides on sale by creditor, property automatically disburdened of security or pari passu security
joint and several obligations and rights of relief
1. often taken out by joint borrowers husband/wife
  1. jointly and severally liable
    1. each has one half pro indivisio share burdened by the whole loan
      1. often standard security contains " all sums due and to become due"
        in such a case all future loans from the same lender will be on the same footing as the original security of the house
2. problems when future loans made to only one of the parties
  1. husband/wife as co-owners grant a standard security for joint loan
    1. thereafter the husband (only) borrows money from the same lender
      1. loan is made out to him in name only
        wife may not know of the transaction
    2. if the new loan is covered by the standard security, it will affect both the husband and wife
      1. usually banks/building societies expressly provide that any debt incurred at any time
        by either party will be burdened by the whole property
        such a style will solve any problems that may occur
        but should be noticed that it still allows one of the parties to create a loan without the knowledg of the other
        may be unethical to construe the ignorant party as liable for the addtional debt
        position may be challenged under Unfair Terms in Consumer Contracts Regulations 1999
3. odd situation occurred in Christie v Armstrong
  1. bought house in common with survivorship destination
    1. joint loan secured on the house
      1. also assigned life policy in Mr Christies name
      2. Mr Christie died shortly after buying house and was intestate
        Mr C's daugher confirmed as executor dative
        Life assurance paid the proceeds of life policy to the lender
        discharged the debt
        Ms C argued whole loan repaid from fathers estate, since life policy formed part of the estate
        but only half of policy proceeds should have used to repay the debt as father was only liable for half the debt
        father jointly and severally liable, Ms C entitled to claim relief from Ms Armstrong
        Ms C claimed repayment of one half of policy proceeds from Ms A
        stained by court in principle
        court held proof was necessary to establish
        intentions of the deceased
        could have been deceased intention to repay all
        therefore, no right of relief in circumstances
4. Royal Bank v Wilson
  1. acknowledge bank failed on number of issues
    1. 1) where joint and several obligations, defaults/calling up notices must be served on all debtors
      1. individually in addition to a letter addressed to the occupier
5. where borrowers have separated only one remains living in security subjects
  1. party may continue to pay the mortgage payements
    1. may wish to claim relief from non-paying party
      1. non-paying party claims implied understanding
        relief would not be claimed in this situation
        as an implied term of the agreement to move out

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