Sandro took out a loan of £35 000 to start a business.The bank manager insisted that the loan should be secured, and Sandro persuaded his mother, Emily, to accept a legal charge of £35 000 on her freehold house.Two years later Sandro's business has failed, and he owes not just the original loan of £35 000 but also a further £10 000 to suppliers who have given him credit.Emily's house is worth £125 000. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Emily's house is secured against the loan of £35 000, which means if Sandro and Emily cannot find another source to pay back the loan, the bank can force the sale of the house to recover the debt. The value of the house being higher than the loan amount is irrelevant in this case.  However, the additional debt of £10 000 may not necessarily be secured against the house and may have to be paid using other means. Option C is also incorrect as it suggests that Emily's house must be sold to pay for all the business debts, which is not necessarily true for unsecured debts. Option D is incorrect as Emily is not personally liable to pay back the loan, the house is.

Sandro Took Out a Loan of £35 000 to Start