payment, interest or annuity secured or any part thereof or performance or observance of any covenant expressed in any Mortgage or Charge 1

Transcription

1 A Mortgagees Remedies Following Default of a Mortgagor G&G A Mortgagee, also known as the lender, has several statutory remedies. These remedies are embodied in the Registration of Titles Act (RTA) of Jamaica and can be found throughout sections A Mortgagee has the following remedies: a) Power of sale by private treaty or by public auction b) Foreclosure c) Power of Distress a). Power of Sale by Private Treaty or Public Auction: Summary: When: Exercised by Mortgagee once Mortgagor defaults in payment or interest Notice requirement: this can be waived or if not waived section 106 is applicable where 2 months notice before the Mortgagee can sell the mortgaged property Effect: The Mortgagee can effect transfer to a Purchaser as if he was the Registered Proprietor Default: Power of Sale Accrues The Mortgagees remedy of power of sale accrues upon default by the Mortgagor. This default is embodied in sections of the Registration of Titles Act (RTA). The default may take the form of: payment, interest or annuity secured or any part thereof or performance or observance of any covenant expressed in any Mortgage or Charge 1 Notice in Writing to Mortgagor Once this is invoked, the next consideration is that of the notice requirement. Section 105 of the RTA states: If default shall continue for one month or for such other period of time expressly fixed (by the Mortgage Deed) the Mortgagee may give notice in writing to the Mortgagor to pay the money or perform or observe the covenant 1 Section 105 RTA 2 Dreckett v Rapid Vulcanizing Co Ltd (1988) 25 JLR 130 1

2 It must be of note that the notice in writing to the mortgagor of the intent of the Mortgagee to invoke the remedy of power of sale, though statutorily embodied, is not mandatory. This is evident by the use of the word may. The object of a mortgage is to enable the Mortgagee to recover his money on the borrowers default at the Mortgagees convenience. 2 Once the power of sale is accrued which it does upon default, default of which is either guided by statute 3 or by the wording of the Mortgage Deed itself, the Mortgagee may exercise it for his own purpose. 4 This matter was settled at Common law in the Privy Council decision of Jobson v Capital and Credit and Merchant Bank et al. 5 The Privy Council held that the Notice requirement as embodied by the RTA in section 106, may be waived if the agreement between the parties in the form of the Mortgage Deed specifically excludes it. This is further supported by section 128 of the RTA which allows for the modification of the provisions of the act by virtue of the Mortgage instrument. Once the principal or/and interest is due, and the Mortgagor fails to honour his obligation pursuant to the terms of the Mortgage, the Mortgagee s right to exercise his power of sale accrues and the process of sale can be pursued with immediacy and no further notice. Notwithstanding, it is prudent to issue some form of notice allowing the Mortgagor to cure within a reasonable period. The Power of Sale and the Mortgagees Duties If default continues for one month after service of the notice, the Mortgagee may sell the land by public auction or by private treaty without being liable to the Mortgagor for any loss occasioned. 6 Where the Mortgage specifically excludes the notice requirement under section 106 of the RTA, the Mortgagee may immediately exercise the right to invoke power of sale. The Mortgagee is not a trustee and, as such, when exercising the power of sale they are not obliged for example to delay to get a better price in the interest of the Mortgagor; a Mortgagee is entitled to sell the property in the condition it stands without investing the money or time to increase its likely sale value. 7 2 Dreckett v Rapid Vulcanizing Co Ltd (1988) 25 JLR RTA section 106 Notice requirement 4 Cuckmere Brick Co. v Mutual Finance Ltd. [1971] EWCA Civ 9 5 (2007) UKPC 8 6 Section 106 RTA 7 Halsbury Laws of England Volume 77 (2010)/8 Rights and Liabilities of the Mortgagee 2

3 As a precondition of sale, it was suggested in International Trust and Merchant Bank v Gardiner 8 that the following be observed: 1. That the current market value of the mortgaged property be determined. This can take the form of a current valuation report from a reputable institution. 2. That proper advertisement be implemented with the view of attracting potential purchasers. 3. That the sale of the property should be aimed at obtaining market value or the best price reasonably obtainable A Mortgagee, though not a trustee in the invocation of his power of sale, is under an obligation in equity to exercise the power of sale in good faith and in the absence of impropriety. In the event that such good faith is not exercised, the sale can be set aside 9 and the Mortgagor may apply for injunctive relief. 10 However, the Courts have held that unless evidence of good faith on the part of the Mortgagee is demostrated, the Mortgagor is not entitled to injunctive relief where the Mortgagee has contracted to sell the Mortgaged property in a purported exercise of power of sale contained in the mortgage. What qualifies as good faith is embodied in common law in the case of Warner v Jacob 11 in what is referred to as the good faith test: a mortgagee is strictly speaking not a trustee of the power of sale. It is a power given to him for his own benefit, to enable him better to realise his debt. If he exercises it bona fide for that purpose, without corruption or collusion with the purchaser, the Court will not interfere even though the sale be very disadvantageous, unless indeed the price is so low as in itself to be evidence of fraud. 12 The Mortgagee must take reasonable care to obtain true market value of the property. However, in recent cases in the UK (precedent of which is applicable in Jamaica), market exposure may have more importance to a court when examining the concept of market value. In Meah v GE Money Home Finance 13, the Mortgagee had effectively advertised the property even serving a final notice which the Court held that market exposure proved more valuable than just seeking the true market price as the former would in effect lead to the realisation of the latter. 8 JM 2004 CA 10 9 Lord Waring v London and Manchester Assurance Co. Ltd. (1935) CH Cabot Paul v Victoria Mutual Building Society SCCA Ch d IBID (2013) EWCH 20 3

4 The sale as exercised under the power of sale, must be genuine. In effect, the Mortgagee is not allowed to sell the property to himself or with others. 14 There is a requirement that an arms length approach be taken with such sales. This is statutorily recited in section 105 of the RTA in that a mortgage does not operate as a transfer of the land but as security only. However, it is interesting to note that in recent decisions, a sale may not be set aside on the basis that the Mortgagee is a shareholder of a purchasing company, provided the Mortgagee does not manage or control the said company, the sale may be allowed. 15 Distribution of Purchase Money from Sale Once the purchase money is received, the Mortgagee is required to distribute the funds in accordance with section 117 of the RTA. This is summarized below: 1. Payment of all expenses associated with the sale 2. Payment of any money owed on the Mortgage 3. Payment of subsequent mortgagees or money owing as according to the priorities 4. Any surplus is paid to the Mortgagor b). Foreclosure Foreclosure Proceedings: Section 119 of the RTA outlines the procedure as it relates to foreclosure proceedings in Jamaica: 1. Once the Mortgagor has defaulted in the payment or interest as is stated in the Mortgage instrument the Mortgagee may opt to foreclose 2. The default must have continued for more than six months consecutively after the time for payment as mentioned in the Mortgage Deed 3. The Mortgagee must have previously attempted, albeit unsuccessfully the sale of the subject property by public auction 4. The process is commenced by an application to the Registrar for an order for foreclosure 5. Notice of this Application must be served on the Mortgagor and all interested parties 6. The application must be accompanied by a certificate of the auctioneer as proof that the land was put up for sale 14 Caribbean Commonwealth Property Law, Gilbert Kodilinye, 2011, Taylor and Francis, at page Tse Kwong Lam v Wong Chit Sen (1983) 1 WLR

5 The Application must state: a. How long default has continued AND b. That the land mortgaged was offered for public auction by a licenced auctioneer after notice of sale served AND c. That the highest amount at the bidding was insufficient to satisfy the moneys secured and the expenses The Registrar will then issue a notice once in each three successive weeks in at least one newspaper, (which circulates in Kingston Jamaica) offering the land for private sale. The Registrar must set a time not less that one month from date of first advertisement to issue the Applicant (Mortgagee) an order for foreclosure UNLESS in the interval sufficient amount has been obtained by sale by private treaty If no sufficient amount, then the Registrar must enter the order and vest property to the Mortgagee or transferees from all rights and equity of redemption 16 of the Mortgagor. Title will thereafter be prepared in the name of the Mortgagee or his transferees. Power of Distress Section 109 and 110 of the RTA provides alternate remedies. Section 110 provides that the Mortgagee may enter into possession of the property receive rents or profits eject tenant and make any distress. Further section 110 of the RTA, allows a Mortgagee the power of distress 7 days after any interest or annuity is outstanding for 21 days. The power of distress allows the Mortgagee to enter land and dsitrain goods and chattels. Limitation Periods: Any claim against a Mortgagee for breach of its duty in equity if six years The equity of redemption is the mortgagor s equitable interest in the property and it consists of the sum total of the mortgagor s rights in relation to the land. This includes the mortgagors right to redeem in equity. Equity allows the Mortgagor to redeem even after the date fixed by the mortgage agreement for repayment has passed. This means that the Mortgagor has the right to redeem the property once payment has been made to the Mortgagee. 17 Limitation of Actions Act 5