Possessory rights of mortgagees - Essay Example

Possessory rights of mortgagees Introduction The mortgage legal environment has expanded consistently over decades as social changes continue to influence peoples’ buying and leasing behaviours. It is notable that both the mortgagees and mortgagers enjoy certain rights in light of agreements drawn on their behalf by their attorneys. It is also significant to recognise that the attorneys have the moral and professional reasonability to ensure that their clients’ rights in such agreements remain clear. Indeed, the attorneys must ensure that their clients comprehend the contents of agreements before they can sign them. This is crucial in legal mortgages because in most cases mortgagees have faced challenges, which threaten their possessory rights. This paper seeks to discuss the possessory rights of mortgagees with a specific focus on describing these privileges. It also seeks to elucidate remedies other than possession, which are available against defaulting borrower, and explains specific situations under which each of the identified remedies shall be applicable. In order to thrash out issues pertaining to the critical aspects of legal mortgage, the Ropaigealach versus Barclays Bank Case will be applicable. Attorneys have continued to consider this landmark case, which has shaped the legal mortgage environment. The Ropaigealach versus Barclays Bank This is one of the original cases which began shaping the mortgage legal environment for different reasons. First, the case came against the backdrop of many incidents where mortgagees had lost their possessory rights because of legal schemes plotted by mortgagers.1 In fact, the legal mortgage environment appeared to have been so bad that mortgagers continuously and repeatedly disenfranchised mortgagees because of defaults, which result from mortgagees’ inability to live up to the official agreement conditions. Secondly, it appeared that legal experts did little to guard against the disenfranchisement of their clients by mortgagers. Against these challenges, ruling on the Ropaigealach versus Barclays Bank Case shifted the way these issues were handled by both mortgagers and attorneys.2 ‘The Ropaigealach decision illuminates brightly the true extent of a mortgagee’s possessory rights and may, if other mortgagees cannot resist the temptation to follow its lead, require the further intervention of Parliament to protect mortgagors of dwelling houses’.3 While making the ruling, the judge held the Ropaigealachs were not served with the letter from the bank, with the ultimate command for payment, reprimanding that the assets would be put up for sale, since they were refurbishing it and they were away. The judge further declared that there would be no pronouncement that Barclays may possibly fail to assume possession exclusive of a court order since the legal instrument could not be otherwise interpreted.4 While making further observations, the judge recognised the weight of the matter saying, ‘it does however strike me as very curious that mortgagors should only have protection in the case where the mortgagee chooses to take legal proceedings and not in the case where he chooses simply to enter the property’.5 The good judge admitted persuasion to the matter indicating that it was not feasible to conclude that Parliament had intentions to cover up such important cases. Through this case, the possessory rights of the mortgagees were restored by stopping Barclays Bank from selling the property in order to recover their defaulted payments. Description of the Possessory Rights of Mortgagees It is notable that the most efficient strategies mortgagees use to get back their security when a mortgagor defaults include sale of mortgaged property. This is only tenable when the mortgagee has the possessory rights to ensure listing of the assets in the marketplace as a vacant premise.6 This frequently takes place when the mortgagor has already vacated the premise to allow for selling of the asset. The mortgagee will, therefore, exercise the possessory rights over mortgaged assets. Additionally, this right does not automatically give the mortgagee the right for sale. This is because possession is often an overture to auction; the same strategy can be employed in such a way that the asset is merely used for the purposes of recovering part of the outstanding balances.7 This requires a critically thought-out way of managing the assets in the most practicable way to generate profits enough to satisfy the mortgagor’s part of the bargain. It is also significant to recognise that it is not necessary for mortgagees to obtain court orders to take mortgaged property under possession. The mortgagee’s ability in this scenario emerges as of right because of the high calibre of the importance they place on the property such as land. Therefore, the mortgagee may obtain the possession through working closely with the mortgagor without having to seek court assistance.8 It is notable that many mortgagees avoid reliance on the good will and faith that the mortgagor has to cooperate since this can present challenges leading to committing criminal offences. Therefore, going with court orders makes the mortgagees to work comfortably and safely without interference from others. The emergence of security interest contemplated mortgage as one of its aspects where possessory rights arise whenever conclusion of contracts binds third parties in property ownership. The attorneys assist mortgagees in making their property available in order to enable them to secure repayment. Mortgage agreements must bestow upon mortgagees equal possessory rights similar to thousands of years of leaseholder.9 This is a protective measure contemplated under legal mortgage agreements, which shall allow mortgagees to get back their property upon completion of the debt payments. The need for mortgagees to enjoy equal possessory rights is contemplated to offer protection against crafty mortgagers in cases where debt repayment presents challenges to the mortgagee. This ensures that mortgagers may sell the property in the worst case in order to realise the outstanding value, but shall not take up ownership of mortgagees’ assets.10 This ensures that mortgagees shall practically get back their assets in any scenario. The mortgagees’ right also entails debt repayment; however, if for the reason that mortgagers conditions makes it difficult to continue with the reimbursement plan, the procedure of taking control of the property and putting it up for sale will commence. This procedure is guided through legal mortgage instruments interpreted by the courts to ensure that mortgagees are fairly and practically treated throughout the process.11 In the same spirit, mortgagers shall move to court to initiate proceedings for taking possession of mortgaged property. The mortgagees also have a right as provided for within the justice administration system to make submissions for adjourning of such takeover proceedings if they can show that they will be able within a realistic period to clear outstanding balances. In the case of Ropaigealach v Barclays Bank, the judge observed that mortgagees had failed to commence lawful proceedings to halt the application by the bank because they were away. Furthermore, mortgagees are protected through ensuring that conditions and the way forward on the provision for sale must form part of the mortgage deed and at least three months grace period provided.12 Mortgagees also enjoy possessory rights of duty of care in sales situations. Here, mortgagers shall ensure that the sale procedure exercises duty of care by disclosing to the public about other hidden issues about the property. Mortgagees’ possessory rights entail the reasonability to declare the present conditions of the mortgaged property by avoiding any conflict of interest.13 The significance is this is to ensure that possessory rights promote and espouse absolute transparency, and to annul extortionist credit negotiation in order to protect consumer rights too. The mortgagees’ possessory rights also ensure that much as they exercise those privileges, they should not contravene the mortgagers’ freedom to quiet gratification of their property or their freedom to family life as provided for by the Convention on Human Rights and other human rights acts.14 This is critical because the human rights laws are highly dynamic and their relationship with the legal mortgage is still unknown. Furthermore, a mortgagee’s argument for ownership is in search of their lawful privileges under the agreement deed, particularly when the possessory rights are equal to the mortgagers’ evasion. There are applicable statutory limitations on the mortgagee’s right to ownership that arise under very specific conditions. The notable ones include efforts by the mortgagee to achieve ownership external to the time limits developed by the Limitation Act 1980 or in infringement of consumer rights, and those against the provisions of the liquidation legislation.15 The mortgagee’s possessory rights also have to do with the privileges for foreclosure. The legal mortgagee can use this powerful remedy because the power of the foreclosure is vested upon the mortgagee, thus eliminating it from the mortgagor.16 The mortgagee has the right to move to court to initiate the foreclosure process where the courts have to make necessary decisions to ensure that the procedure for undertaking the same are in line with provisions in the legal mortgage. Remedies Other Than Possession, Which Are Relevant against Defaulting Borrower and Specific Conditions for Application Appointment of a Receiver This entails the ability of mortgagees to identify another person or company to act as a receiver in order to help in administering the mortgaged asset. This helps the mortgagee to recover the outstanding balance owed. This could also facilitate the sale of mortgaged assets as a ‘going concern’.17 It is notable that privilege to select a receiver normally forms part of the mortgage agreement. However, the power to select a receiver shall be vested in each mortgagee by legal documents. The entailed power is normally exercisable during situations when the authority of the auction becomes exercisable. This is always a substitute to that remedy and responsibilities of a receiver might be considered as comparable to those provided for by the mortgagee. The identification and selection of receivers present a positive outcome in that it avoids the challenges always faced when mortgagees assume possession of assets on their own. This is because those appointed as receivers are seen as the agents of the mortgagor, and not the mortgagee.18 This is presented with the outcome that any carelessness in the management and administration of the assets is not because of the mortgagee and neither is the agreement answerable to show accountability for any profits obtained by the receiver. Foreclosure This is essentially the most dominant and authoritative remedy that mortgagees can apply. The use of foreclosure by mortgagees has diminished considerably. It is notable that in most cases when foreclosure becomes successful, it will eliminate the impartiality in recovery and effectively transfers the mortgaged asset to the mortgagee complimenting the privileges of the mortgagor.19 This is an indication that foreclosure vests the borrower’s property on the mortgagee, thus eliminating the mortgage together with its associated conditions. Therefore, mortgagees acquire rights in both freehold and leasehold. It is important to note that mortgagee’s freedom to undertake foreclosure emerge immediately after the legal date for recovery is passed.20 Further, mortgagees are required to undertake foreclosure after providing full notice especially on the respective aspects where defaults arise. Fundamentally, mortgagees normally initiate a court process to request foreclosure when the need emerges. This interest can only be suspended if the mortgagor pays back the mortgage within certain specific time limits. However, should the pay back process fail to begin, mortgagees shall obtain foreclosure rights, thus enabling mortgagors additional six months for resource mobilisation in order to obtain the threshold to pay the debt.21 In addition, if the mortgagor fails after the six months, the foreclosure becomes unconditional in order to write off the mortgagor’s interest in the property. This normally forms the final aspect of this remedy. The foreclosure remedy has statutory controls because of its powerful nature of summarising engagements.22 The courts play an important role in ensuring that the sale occurs in the most appropriate manner. The court can order for auction in lieu of the provision of the remedy after which the profits shall be spread accordingly to ensure mortgagees’ sale rights are protected. The mortgagor normally gets any additional funds after the payment for the mortgage. Conclusion In summary, the original landmark cases of mortgagee’s possessory challenges necessitated the search for solutions to deal with mortgagors. The mortgagors have continued to give mortgagees many challenges in terms of debt recovery. The mortgage agreement that both parties enter into with the assistance of an attorney means that everything is contractual and no party can manipulate each other. The mortgage legal environment has expanded since the Ropaigealach versus Barclays Bank case, which has continues to illuminate brightly to the extent of a mortgagee’s possessory rights. The judge who presided over the case argued that the bank failed to serve the mortgagors with warning letters and therefore could not subject the mortgaged property to the marketplace for sale. The mortgagee’s possessory rights entail all the strategies that mortgagees can apply in recovering their unpaid loans. The most notable is the management of mortgaged property in such a way that it can generate profits used to recover outstanding balances. However, sale of the property may be the final solution for the mortgagee to recover their unpaid dues in full. There are remedies other than possession, which are also applicable for recovering the unpaid loans. These could include appointment of receivership to manage the mortgaged property or foreclosure where mortgagees seek court orders to initiate the process of recovering their funds. It has diverse opportunities to offer mortgagors additional chances to complete the balances until a point where it becomes impracticable for the mortgagor to make the repayments, after which the foreclosure shall be implemented. References Dixon, M, Modern Land Law (New York, Routledge 2010) Dixon, M, ‘Mortgagees and Their Possessory Rights’ (1999) 58(2) The Cambridge Law Journal 281, 283 accessed 29 March 2013. doi: 4508564 Dixon, M, Principles of Land Law (New York, Routledge 2002) Haley, M, ‘Mortgage Default: Possession, Relief and Judicial Discretion’ (1997) 17 Legal Studies 483, 497 accessed 29 March 2013. doi: 10.1111/j.1748-121X.1997.tb00417.x Ruoff, T, ‘The Protection of the Purchaser of Land under English Law’ (1999) 32 The Modern Law Review121, 141 accessed 29 March 2013. doi: 10.1111/j.1468-2230.1969.tb02290.x Read More