Legal Mortgage – Pt II

Last week we looked at some aspects of legal mortgage. This week we will continue on this topic. We looked at some of the contents of the document known as a deed of mortgage, even though it is referred to as an indenture in the introduction.

The Power of Sale

One of the important clauses in the mortgage document is that which deals with the power of sale. This is an important protection for the mortgagee, that is, the lending institution. The mortgagee makes an important input in the contract by providing the funds for the project.{{more}} The mortgagor accepts the funds and provides asset of equal value to seal the contract. This asset, which is often in the form of real property, for example, land and the house built on it. The mortgagee promises to return the property after the loan is repaid. This is referred to as the equity of redemption in the document.

The mortgagor will be expected to pay the loan in installments every month or as stipulated in the deed because the mortgagor covenants that he will at all times during the continuance of the security pay the installments including interest. If for the reasons stipulated under the power of sale in the contract, the mortgagor fails to meet his or her commitment, he would have breached the contract, causing the mortgagee to invoke the power of sale. A demand would be made by letter to pay the sum owing. If the payment is not made, the mortgagor must advertise the property for sale and do all that is possible to prepare it for sale by allowing interested parties to view the property. The sale would be by private treaty or public auction as stated in the deed of mortgage. The mortgagor has no power to prevent the sale. He can only repossess the property if he pays the debt.

Covenants

Besides the power of sale, the mortgagee covenants to pay the taxes, charges and assessments that become due and payable on the property. It requires the mortgagor to insure any buildings on or to be built against loss or damage by hurricane, earthquake, and volcanic eruption in full insurable value. The mortgagor promises to keep and maintain the building on the property “in good complete and substantial repair and condition”. Not forgetting that he has in his possession property that has been conveyed to the mortgagee, the mortgagor must at all reasonable times allow and permit the mortgagee, its agent or servant to enter the property to inspect the state and condition.

The mortgagor cannot lease a mortgage property during the continuance of the mortgage without the consent in writing of the mortgagee.

The interest rate of the mortgage could be varied either up or down, but the mortgagee has an obligation to give the relevant notice before this is implemented. The rate of interest cannot be increased above that stated by law. The mortgagor could give notice within one month of any intention to pay off the principal outstanding before the new interest is imposed.

The mortgage deed must be signed and sealed by both parties. The document is registered at the Land Registry and becomes a public document that could be inspected by anyone.

Ada Johnson is a solicitor and barrister-at-law.
E-mail address is: exploringthelaw@yahoo.com