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It is not uncommon for people to lose their property in mortgage transactions in the Bahamas. One of the reasons for this ugly trend is our low-saving culture and high-spending habits. However, the other reason why so many people lose their property in the Bahamas is the attitude of some heartless lawyers who intentionally would refuse to fight for their clients interest in trying to save their property apparently because of some retainers they are getting from the lending (financial) institutions/banks so as to remain in the good books of these banks. The third reason why so many Bahamians lose property in mortgage transactions is the conservatism of our judiciary who though they are trained in common law traditions have refused to be more progressive and teleological in dealing with issues relating to mortgage transactions. We end up having our courts dealing with mortgage matters in a manner that fundamentally differs from a typical English mortgage of real property. If our judges and lawyers duly follow the principles of English mortgage of real property as it ought to be construed, consumers in the Bahamas will not be loosing their property to lending institutions at the disastrous rate that people continue to lose their property.
What is a mortgage? What are the rights and remedies of the parties to a typical mortgage transaction – ie the mortgagor and mortgagee? Since law is an instrument of social engineering and balancing of interest, how can these interests be balanced in an equitable, fair and conscionable manner within the context of sociological and progressive jurisprudence? We shall address the above issues seriatim. First and foremost it has been observed by an eminent judge that no one by light of nature ever understands the concept of English law of mortgage. Thus at the outset, we must state that mortgages by their very nature are highly complex. However, for practical purposes, we will define mortgage by saying that mortgage is a loan of cash secured by the lender (the mortgagee) being given rights over property offered up as security by the borrower (the mortgagor). Prior to the enactment of the major legislation that radically reformed the English Real Property (Land) Law, the Law of Property Act, 1925, a legal mortgage of a freehold took the form of a conveyance of the land to the mortgagee for the duration of the mortgage. It used to be that on the repayment of the loan the property was then re-conveyed to the mortgagor. Under this arrangement, the mortgagee had valuable right over the property. In the past, the mortgagee could keep the property in whole or partial satisfaction of the debt if it was not repaid.
Since there was only one legal estate, it simply meant that only one legal mortgage could be created. Although the borrower (mortgagor) did retain rights in the property which was recognized by Equity and which could be mortgaged. However, such a mortgage could only be equitable.
However, since 1925, following the coming into force of Law of Property Act 1925, the borrower’s legal estate is not transferred to the lender/mortgagee, although the way lawyers in the Bahamas would seem to suggest that the contrary (ie the old practice) is still the case despite the fact that our Law of Real Property Mortgage fundamentally draws from English Law of Real Property Mortgage. See section 85 of the Law of Property Act 1925. Upon the execution of the mortgage documents, the legal estate of the borrower is charged principally by the amount borrowed on the property but in order to compensate for this charge on his property, various rights are attached to the borrowers in the transaction. See also section 87 of the Law of Property Act 1925 to the effect that the property can be mortgaged by a charge by deed expressed to be by way of legal mortgage. This can be used for both freehold and leaseholds, and gives the mortgagee the protection, rights and remedies as if the mortgage had been made by lease or sub-lease. In reality the charge by way of legal mortgage is the usual way of mortgaging property. Whether with registered or unregistered land, the mortgage must be registered upon execution.
As for the rights and remedies of the parties in the transaction, the most common right of the mortgagor is the right to redeem. Ordinarily the mortgage will specify a date on which the mortgage money is to be repaid. This is commonly referred to as the legal date for redemption. At common law, consistent with its strict, rigid and harsh nature, if the money was not repaid on the agreed date the lender became entitled to retain the property which the borrower had conveyed to him. However, Equity, which came about to ameliorate the rigidity, strictness and harshness of the common law had a different view of the mortgage transaction. See section 25(11) of the Supreme Court Judicature Acts 1873-1875. See also the rule in Walsh v Lonsdale 1882 21 Ch. Div. 9 In the eyes of Equity a mortgage is essentially a loan of cash secured by a property transaction. In the eyes of Equity also, the position is that once a mortgage always a mortgage. See for example the case of Kregliner v New Patagonea Meat and Cold Storage Co. Ltd. Equity therefore allows a mortgagor to redeem his mortgage at any time after the legal date for redemption, provided –
- The borrower gives at lest six months’ notice of intention to redeem, or
- Pays six months interest in lieu of notice
Note however the difference between the mortgagors Equity of redemption and Equitable right to redeem. Equity of redemption refers to the right of the mortgagor to have his interest in the property fully back to him on the repayment of the amount borrowed with interest, whereas Equitable right to redeem refers to the mortgagors right to redeem even after the legal date of redemption has come and passed. There are four or five circumstances under which even foreclosed mortgage can be reopened and Equity of redemption revived. Equitable right to redeem is jealously guarded by Equity and therefore any transaction the substance of which is that money is lent or the security of property is treated as a mortgage. Besides, there must be no "clog" or "fetter" on the Equity of redemption. This means that Equity will strike down a legal date for redemption which is so far in the future as to render the right to redeem illusory. In every case the object is to prevent the borrower from keeping the property for himself so long as the borrower may still be in a position to repay the amount secured.
It follows that in substance Equity still regards the borrower as being the true owner of the property, and prevents the lender from obtaining more than the return of his capital plus interest and costs. These rights as previously adumbrated are known as the "Equity of redemption". In factuality, they boil down to the market value of the property less than the amount outstanding on the mortgage. However, equitable rights are usually mutual and reciprocal, thus Equity did not ignore the interest of the mortgagee in the transaction. As for the mortgagee’s rights, in order to compensate the lender for the loss of the legal estate sections 85 and 86 Law of Property Act 1925 specifically allow a first mortgagee to have the right to take the title deeds – especially in unregistered land and with registered land, a registered mortgagee is normally issued with a charge certificate. The mortgagee also has a right to possess the land because a mortgagee after 1925 is either a lessee or has the equivalent rights under a charge by way of legal mortgage and the right of a leasee is to take possession of the property. In practice, this right will only be exercised if the mortgagee wishes to sell, vacate possession, or to rent out the house to produce income to keep the mortgage debt down. In the case of residential property, the mortgagee must make application to the court for an order allowing the mortgagee to exercise its right of possession. But the law equally gives the mortgagor a degree of protection. A good property lawyer will not easily allow his client to lose his property to the mortgagee without seeking for an alternative and equitable way to redeem the mortgage and save the mortgagors’ property. In progressive jurisdictions, experienced and competent Conveyancing and Real Property lawyers have been able to persuade courts to arrive at an arrangement whereby the mortgagor actually becomes a tenant to the mortgagee until the entire debt is liquidated or the mortgagee has been allowed to take over the property, manage it, collect their debt and eventually transfer the property to the mortgagor after some period of time.
It is difficult even in the United Kingdom for courts to easily throw out a mortgagor from his dwelling property except where it is absolutely hopeless that anything could ever have been done to redeem the mortgage. Indeed, when it comes to a dwelling house, the provisions of section 36 of Administration of Justice Act (English) 1970 actually gives the mortgagor a certain degree of protection. Under the above mentioned provision the court has power on the hearing of an application for possession to adjourn or suspend the proceedings if it seems likely that the mortgagor is likely to be able to pay within a reasonable period of time any sums due under the mortgage. In the case of an installment mortgage "any sums due" means arrears which have so far accrued, not the whole amount of the loan. Notwithstanding any clause in the mortgage to the effect that in the event of default, the whole amount outstanding forthwith becomes due and payable.
Recently, one person who defaulted in his mortgage sought my help and I agreed to assist him to the best of my ability. His property valued about $225,000.00. His indebtedness as a result of his default in the mortgage to the lender/mortgagee, a local bank, was in the amount of $127,000.00. Out of humanitarian considerations, we sought to assist him in offering him legal advice and engaging the bank in correspondences aimed at finding an equitable means of dealing with his unfortunate circumstances. We sought for re-financing from an organization that previously agreed to re-finance the mortgage according to what the mortgagor told me. Every conceivable effort was exhausted to secure this undertaking to re-finance the mortgage but the organization would not issue the mortgagor with the "promised undertaking". Beside, the mortgagee refused to indicate any readiness to accept re-financing. Although the mortgagor’s position was "worsted" by the failure of the organization to arm him with a letter of undertaking so as to enable him to be in a position to fight against the lender/mortgagee’s attempt to repossess and sell his pristine property. In the absence of this vital undertaking the mortgagor’s position seemed hopeless and helpless. There is no doubt that the mortgagee has a right to sue on the debt but in practice most mortgagees will go for the other mortgagee’s remedy which is the right of sale. By virtue of the provision of section 101 Law of Property Act 1925 every legal mortgagee has a power of sale which arises when the mortgage money becomes due, ie on the legal date for redemption. It is for this reason that the legal date for redemption historically was usually no more than six months after the date of the mortgage and these days it is more usually one month thereafter. Note however that as between the borrower/mortgagor and lender/mortgagee the power of sale does not become exercisable under section 103 Law of Property Act 1925 unless and until:
- Notice requiring payment of capital has been served and default made by the mortgagor for three months thereafter, or
- Any interest under the mortgage is in arrears and unpaid for at least two months, or
- There has been a breach of some other mortgage provisions either expressed or implied by Law of Property Act 1925.
- Note further, however, that even where a mortgage has been foreclosed and the mortgagor’s equity of redemption extinguished that foreclosure can be re-opened and equity of redemption revived in the following circumstances where:
- Failure to make payment was occasioned by a financial accident not within the contemplation of the parties at the time they entered into the mortgage transaction.
- Where the value of the property mortgaged exceeds the amount borrowed.
- Where the property is of unique or sentimental value to the mortgagor/borrower,
- Where the mortgagor demonstrates an ability, readiness and willingness to make prompt payment or makes prompt payment, and
- Where the court in the exercise of its inherent equitable jurisdiction deems it fair, just, conscionable and equitable to re-open the foreclosure and revive the equity of redemption.
- The most practicable circumstance among the above will be where the mortgagor demonstrates a readiness and willingness to make prompt payment.
However, all the above will also depend on other factors but an experienced and competent Property and Conveyancing lawyer will most likely zero in on the mortgagor demonstrating a readiness and willingness to make prompt payment or at least a substantial payment or seek to reach a mutually agreed arrangement between the mortgagee and mortgagor. In taking these steps potential purchasers of the mortgage property will be put on notice of the interest of the mortgagor. Note, however, that a buyer from a selling mortgagee is not concerned as to whether the power of sale has become exercisable. All he has to do is to check the mortgage deed to see that the power has arisen. If, however, a buyer is specifically aware of the fact that the selling mortgagee is acting improperly it has been suggested by the court that he may not necessarily get a good title, despite the wording of the Law of Property Act 1925. Thus, such a mortgagor is advised to pursue his equity vigorously and exhaustively once there is any indication that he may be able to make substantial payment. But note that the right to redeem is lost as soon as the mortgagee enters into a contract to sell the property. However, the equitable right to redeem remains and it will be strategic and tactful for the mortgagor to approach the court at this point in time and seek that the court exercises its equitable jurisdiction. See section 91 of the Law of Property Act 1925. See also the case of Palk v Mortgage Services Fund Plc. As previously said, even after a final decree of foreclosure it is possible for the borrower to re-open it if he acts timeously and promptly and can now at long last repay the debts or enter into a new arrangement for the repayment of the debts as the court in exercise of its inherent equitable jurisdiction will always take into consideration the repayment of the money owed to the mortgagee/lender.
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