Mortgages

Question 1

What is a mortgage?

Answer 1

A Mortgage can be defined as a form of security for the repayment of a debt.

Question 2

The party who grants the mortgage over his property is called the ____________.

Answer 2

mortgagor or chargor

Question 3

The lender to whom the mortgage is granted is called the ______________.

Answer 3

mortgagee or chargee

Question 4

The debt that is secured by the mortgage instrument is referred to as the ________________.

Answer 4

mortgage debt.

Question 5

True or False.

Both registered and unregistered land may be mortgaged.

Answer 5

True

Question 6

What are the costs associated with a mortgage? and by whom are costs borne?

Answer 6

Costs –
- government duties payable on the mortgage document and
- attorneys fees for preparing mortgage document
- registration/recording fees

are borne by the Borrower.

Question 7

How is a mortgage of registered land is created?

Answer 7

By way of charge.

An instrument or memorandum charging the land must be prepared, executed and registered

Question 8

Who usually prepares the mortgage?

Answer 8

the mortgage is usually prepared by the Attorney acting for the mortgagee (Lender).

Question 9

True or False.

A charge operates as a transfer of the fee simple interest in the property to the Lender.

Answer 9

False.

S67(4) of RLA
A charge shall not operate as a transfer but shall have effect as a security only.

Question 10

True or False.

A mortgage does not have effect as a security until it is registered under the Registered Land Act

Answer 10

True.

Question 11

How is the registration of a mortgage noted?

Answer 11

the mortgage is noted on the land certificate as well as in the register for the particular parcel of land

Question 12

What statutory provision deals with the registration of Mortgages?

Answer 12

Section 67 Registered Land Act

(1) A proprietor may, by an instrument in the prescribed form, charge his land, lease or charge to secure the payment of an existing, a future or contingent debt or other money or money’s worth or the fulfilment of a condition, and the instrument shall contain a special acknowledgement that the chargor understands the effect of section 75, and the acknowledgement shall be signed by the chargor, or where the chargor is a corporation, by one of the persons attesting the affixation of the common seal.

(3) The charge shall be completed by its registration as an encumbrance and registration of the person in whose favour it is created as its proprietor and by filing the instrument.

(4) A charge shall not operate as a transfer but shall have effect as a security only.

Question 13

What are the remedies open to the Mortgagee in the case of default by the mortgagor?

Answer 13

• The right to sue on the personal covenant to repay the debt
• The Right to appoint a receiver
• Power of Sale

Question 14

What is the most commonly used remedy by a mortgagee in the case of default by the mortgagor?

Answer 14

The Power of Sale

Question 15

How is the Power of Sale regulated? and what does regulation deal with?

Answer 15

The Power of Sale is regulated by a number of provisions in the registered land legislation which deals with matters such as:

• when the power of sale becomes exercisable
• what notice must be given when it is exercised
• How is to the power of sale to be properly exercised
• protection is given by the legislation to persons who purchase the mortgaged/charged property from the mortgagee/chargee
• how are the proceeds of sale to be applied

Question 16

What Statutory provision lists a number of covenants that are implied in mortgages of registered land?

Answer 16

Section 70 of the RLA

Question 17

Statute lists a number of covenants that are implied in mortgages of registered land. What are they?

Answer 17

Section 70 of the RLA.
There shall be implied in every charge, unless the contrary is expressed therein, agreements by the chargor with the chargee binding the chargor-

(a) to pay the principal money on the day therein appointed and, so long as the principal sum or any part thereof remains unpaid, to pay interest thereon at the rate and on the days and in the manner therein specified;

(b) to pay all rates, taxes and other outgoings which are at any time payable in respect of the charged property;

(c) to repair and keep in repair all buildings and other improvements upon the charged land or comprised in the charged lease, and to permit the chargee or his agent, at all reasonable times and after reasonable notice to the chargor, to enter the land and examine the state and condition of such buildings and improvements;

(d) to insure and keep insured all buildings upon the charged land or comprised in the charged lease against loss or damage by fire or hurricane in the joint names of the chargor and chargee with insurers approved by the chargee to the full value thereof;

(e) in the case of a charge of agricultural land, **to farm the land **in accordance with the rules of good husbandry;

(f) in the case of a charge of land or of a lease, not to lease the charged land or any part thereof, or sublease the whole or any part of the land comprised in the charged lease for any period longer than one year without the previous consent in writing of the chargee, but such consent shall not be unreasonably withheld;

(g) not to transfer the land, lease or charge charged or any part thereof without the previous written consent of the chargee, but such consent shall not be unreasonably withheld;

(h) in the case of a charge of a lease, during the continuance of the charge to pay the rent reserved by the lease and observe and perform the agreements and conditions thereof, and keep the chargee indemnified against all proceedings, expenses and claims on account of the non-payment of the said rent or any part thereof, or the breach or non-observance of the said agreements and conditions or any of them, and, if the lessee has an enforceable right to renew the lease, to renew it;

(i) where the charge is a second or subsequent charge, to pay the interest from time to time accruing due on each prior charge when it becomes due, and at the proper time to repay the principal money due on each prior charge; and

(j) that where the chargor fails to comply with any of the agreements implied by paragraphs (b), (c), (d), (e), (h) and (i) the chargee may spend such money as is necessary to remedy the breach, and may add the amount so spent to the principal money, and that thereupon the amount shall be deemed for all purposes to be part of the principal money secured by the charge.

Question 18

What are the rights of a Mortgagor?

Answer 18

Effectively, a Mortgagor has two rights of redemption of his property; a legal right and an equitable right.

• The legal right to redeem
  This is the contractual right to redeem his property on the date specified in the mortgage instrument.
• Equitable right to redeem
  The equitable right to redeem arises in a situation where after the contractual date for repayment has passed. The mortgagor is permitted to redeem his property on his satisfying the principal borrowed, the interest on that principle and costs and giving proper notice to the mortgagee even when the specified date had passed.

Question 19

The mortgagee’s rights and remedies are given to him for one purpose only- What is that?

Answer 19

to secure his principal and interest.

Question 20

What Statutory Provision deals with the remedies available to the mortgagee in case of default?

Answer 20

Section 75 of the RLA

Question 21

Outline the procedure for exercising a power of sale

How does the procedure differ if the parties covenanted out of the need for notice?

Answer 21

• Mortgagor defaults on payment of principal, interest or covenant
• Default persists for one month
• Mortgagee serves notice in writing to Mortgagor
• Mortgagor does not comply for three months after being served
• Mortgagee exercises Power of Sale

or

• Mortgagor defaults on payment of principal, interest or covenant
• Default persists for one month
• Mortgagee applies to the court to exercise the power of sale
• Mortgagee exercises Power of Sale

Question 22

Can the mortgage instrument waive the requirement for notice? If so, what is the effect of doing so?

Answer 22

Yes.
The Act (Section 80) allows the mortgage instrument to waive the notice requirement but where the instrument does that - under the Act, in order for the mortgagee to rely on that waiver of notice clause in the mortgage instrument - the mortgagee must nonetheless go to court to obtain a court order permitting it to exercise its power of sale without first giving notice.

Question 23

What is a reserve Price?

Answer 23

a price below which the property cannot be sold at the auction

Question 24

Section ___ allows the mortgagee, once the power of sale becomes exercisable, to sell the property by public auction, subject to such reserve price and conditions of sale as the mortgagee thinks fit.

Answer 24

78

Question 25

How is the Power of Sale to be exercised?

Answer 25

by public auction, subject to such reserve price and conditions of sale as the mortgagee thinks fit.

Question 26

What duty is the Mortgagee in exercising its power of sale

Answer 26

• to act honestly and in good faith
• to take reasonable steps to ensure that property is sold at the best price

Question 27

What factors will the court consider to determine if the power of sale was conducted properly?

Answer 27

• whether a valuation by a qualified valuer was done
• whether a qualified auctioneer was engaged
• whether a reserve price was set
• whether the sale was advertised
• whether the sale was advertised for the required period
• whether the advertisement adequately described the property
• whether there was any impropriety/ collusion with purchaser and the auctioneer and/or the mortgagee

Question 28

What does proper advertisement of the auction include?

Answer 28

• Did the advertisement give a full detailed description of the property including and referring to the various amenities/ improvements attached to the property?
• It is important that the advertisements contain an accurate full and detailed description of the premises and what they comprise so as to attract/encourage potential bidders/purchasers to attend.
• Was the sale advertised in a daily newspaper – at least for 3 to 4 weeks one week apart prior to the auction?
• Did the advertisement give clear information as to the time/venue and date of the auction?

Question 29

What would be considered a proper valuation of the property?

Answer 29

• obtained from a qualified and reputable valuer
• sets out the current market value of the property
• gives full description of the property including its amenities and improvements

Question 30

What does the requirement for an ‘arms length bargain’ entail?

Answer 30

There must be no impropriety in the conduct of the auction sale or any hint of collusion between the purchaser and the auctioneer or between the purchaser and the mortgagee.

Question 31

True or False.

A connection between the purchaser and the mortgagee automatically invalidates a sale.

Answer 31

False.

The connection between the mortgagee and the Purchaser gives rise to an inference of collusion. But the connection would not necessarily invalidate the sale. However, it puts a heavy onus and burden on the mortgagee to prove that it was an arm’s length bargain and that the mortgagee took reasonable precautions to obtain the best price.

Question 32

What remedies are available to the mortgagor in the event that the power of sale was not properly exercised?

Answer 32

• injunction to restrain the sale (if no agreement entered yet)
  -injunction (if agreement, but no bona fide purchaser)
• damages (if sold)
• action to have sale set aside (if collusion)

Question 33

What is a very likely term of an order for an injunction restraining the sale that the mortgagor must be advised of?

Answer 33

a very likely term of the order granting the injunction is the requirement that they pay into court the amount owing under the mortgage.

Question 34

What will the court consider in having a sale set aside?

Answer 34

• the effluxion of time and award damages instead
• limitation

Question 35

a bona fide purchaser who enters into a contract for sale with a mortgagee who exercised his power of sale is protected. When did the protection arise?

Answer 35

The answer must be when the contract was executed by both parties.

-The payment of money is not a necessary precondition for there to be a valid contract between the mortgagee and the purchaser unless the contract specifically says that unless a certain sum is paid on execution then the contract is not valid. In the absence of a clause of this nature, non-payment of money does not put the contract at an end or prevent it coming into being.

Question 36

a bona fide purchaser who enters into a contract for sale with a mortgagee who exercised his power of sale is protected. When did the protection arise?

Answer 36

The answer must be when the contract was executed by both parties.

-The payment of money is not a necessary precondition for there to be a valid contract between the mortgagee and the purchaser unless the contract specifically says that unless a certain sum is paid on execution then the contract is not valid. In the absence of a clause of this nature, non-payment of money does not put the contract at an end or prevent it coming into being. (JMMB Merchant Bank Ltd v Mahoe Bay Company Ltd Supreme Court Civil Division Claim No 2013 CD 0001)

Question 37

The Mortgagee is a trustee of the surplus sale proceeds and legislation requires the Mortgagee to apply the purchase money arising from the sale of the mortgaged property in what way?

Answer 37

• 1st – payment of expenses of and incidental to the sale and consequent on the default
  stamp duty, transfer tax, auctioneer’s cost and cost of valuation report
• 2nd – payment of the mortgage debt
• 3rd – payment to subsequent mortgages in the order of their respective priorities
• 4th – any surplus to mortgagor

[Section 78]

Question 38

Can the mortgagee convey to and vest in the purchaser the fee simple interest in the property?

Answer 38

Yes.

Even though the mortgagee is not the registered proprietor of the property, the registered land acts in the various jurisdictions give him (the mortgagee) the ability to convey to and vest in the purchaser the fee simple interest in the property.

Question 39

Advise a mortgagee on the procedural steps to exercise the power of sale.

Answer 39

• Title search - to determine if the mortgage was registered - to determine if there are any other mortgages on the property (important to the settling of debts)
• Review of mortgage instrument - look at the terms - specifically, determine if the parties contracted out of the need to give notice or contracted to sell by private treaty.
• Determine whether the Mortgagor is in fact in default
• Determine how long the mortgagor has been in default (has to be in default for a month)
• If in default for a month, notice must be given in writing to the Mortgagor. The notice must inform that they are in default and that if payment is not made within 3 months, the power of sale will be exercised.
  If contracted out of the need to give notice a court order is necessary to proceed without giving notice.
• If default after three months of receiving the notice, can proceed to exercise the power of sale by public auction.
• engage a qualified and reputable valuer for a valuation of the property. The valuation must include the market value, a full detailed description of the property, and all its amenities. [Valuation not necessary but best practice]
• engage a qualified and reputable auctioneer to handle the sale. Must give the auctioneer the valuation report, the reserve price (usually the market value), and the particulars of conditions of sale.
• adequate and proper advertisement - the content of the ad must be a detailed fulsome description of the property setting out all the amenities, size, and locations of the property, the frequency with which it was advertised (3-4 weeks, 1-week intervals), widely circulated newspaper, information as to date venue, and time.
• if the reserve price is met, the property is sold.
• proceeds of sale distributed - to settle incidental expenses for sale - incidental on default - payment of mortgage debt - payment of subsequent mortgages (if any) - balance to the mortgagor
• if the reserve price is not met, the auction is unsuccessful. *An application may be made to the order requesting permission to sell by private treaty.
• you must have an arms-length sale - no impropriety or collusion between auctioneer and purchaser or mortgagee