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Review Your SQE 1 Practice Records

Examination Timing: 00H01M39S

Alex and Fiona are the legal and equitable owners of a leasehold property which is charged to SecureLoans by way of legal mortgage to secure the repayment of a mortgage advance. The property is worth £100,000, and the balance of the mortgage is £150,000. Alex and Fiona default on their mortgage loan, and SecureLoans is considering whether to foreclose. How would you advise SecureLoans?

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An order for foreclosure will vest Alex and Fiona's legal estate in SecureLoans, but it will not be able to recover the additional £50,000 from them after the sale of the property. Foreclosure operates to merge the mortgage into the estate that it is granted over, thus vesting the estate in the mortgagee. Once the mortgage is foreclosed, the mortgage no longer exists, and the mortgagee cannot sue under that mortgage for any shortfall. This means SecureLoans will gain ownership of the property but will forfeit the right to pursue Alex and Fiona for the remaining debt beyond the property's value. 

Key Point: Foreclosure allows the mortgagee to obtain ownership of the mortgaged property, extinguishing the mortgage debt. However, this also means the mortgagee cannot seek further repayment from the mortgagor if the property's value is less than the outstanding mortgage balance, highlighting the finality of foreclosure proceedings.

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