This section is from the book "Real Property, An Introductory Explanation Of The Law Relating To Land", by Alfred F Topham. Also available from Amazon: The New Law Of Property.
The mortgagee has five ways in which he can enforce repayment.
I. Sue on the personal covenant. - The mortgagor, as we have seen, covenants in the mortgage deed that he will re-pay the money lent with interest, and the mortgagee can sue on this covenant at any time after the six months (a) have expired.
(a) Or other period fixed for payment.
This remedy will be used if the land becomes less valuable and insufficient to secure the mortgage debt. It will only be useful if the mortgagor has money with which he can pay, and therefore is not so valuable as the remedies against the land itself.
II. To take possession. - At law the mortgagee is entitled to the fee simple, and therefore he can enter into possession of the land at any time, after the execution of the mortgage (b).
It is usual, however, to leave the mortgagor in possession, and equity discouraged a mortgagee from entering into possession; hence the following rule.
If the mortgagee takes possession, he must account very strictly, not only for the rents and profits of the land which he has received, but also for all those which he might have received if he had exercised the greatest care.
White v. City of London Brewery (1889), 42 Ch. D. 237.
The Brewery Company were mortgagees of a public house. They entered into possession and made a lease of the house to Moulton with a proviso that Moulton should only buy beer from them.
Held, the Brewery Company must account not only for the rent which they received from Moulton, but also for the increased rent which they might have received if they had let the public house as a "free house."
An account taken on this basis is called "an account on the footing of wilful default," the mortgagee being liable for all moneys which "but for his wilful default" he might have received.
' The mortgagee incurs the same liability if he appoints another person as his agent to take possession and collect the rents and profits.
(b) Unless the mortgage contains covenants inconsistent with this right. "Coote on Mortgages," 7th Edn., p. 814.
If the land has been leased by the mortgagor, the mortgagee can give the tenants notice to pay the rent to him.
III. To Foreclose. - The mortgagee can at any time, after the six months (c) have expired, apply to the Court that the mortgaged land may become his absolutely, freed from the equity of redemption.
The Court fixes a time (usually six months) within which the mortgagor must pay off the debt, and declares that (i.) if the mortgagor shall pay off the mortgage debt with interest and cost within that time, the mortgagee shall re-convey the land to him.
(ii.) if not, the mortgagor shall be for ever foreclosed of his equity of redemption.
This is called an order for foreclosure "nisi," because the mortgagor will be foreclosed "unless" he pays within the six months. Thus the mortgagor is given an opportunity of raising the money elsewhere, and if he fails to do so, a foreclosure order absolute will be made and the land thereupon becomes the property of the mortgagee.
The equity of redemption can only be extinguished in this way by an order of the Court.
IV. To sell. - The mortgagee may, under certain circumstances, sell the land; if so he must apply the proceeds of sale (after paying off any prior mortgages)
(1) in paying the costs of sale;
(2) in paying to himself the mortgage debt and interest;
(3) he must pay the surplus to the mortgagor (d) or other person entitled to such surplus.
This is not such a harsh remedy as foreclosure, for the mortgagor does not lose his whole interest in the land, but is entitled to the surplus of the proceeds of sale if the land is more valuable than the mortgage debt.
(c) Or other period fixed for payment.
(d) Conveyancing Act, 1881, s. 21 (3).
The mortgagee can sell without an order of the Court.
The circumstances under which he can sell are as follows: -
(1) If the mortgage was made before 1860. - He has no power of sale unless such a power was expressly given by the mortgage deed.
(2) If the mortgage was made after 1860 and before 1882. - A power of sale is implied in every mortgage by deed by Lord Cranworth's Act, 1860(e).
But this Act was not usually relied on, as the power of sale thereby given was not sufficiently wide in some respects.
(3) If the mortgage was made after 1881 (f) then by s. 19 of the Conveyancing Act, 1881, a power of sale is implied in every mortgage by deed as if it were expressly inserted in the deed, unless the deed provides that there shall be no power of sale.
A mortgagee cannot exercise this power of sale (g) until (1) the principal money is due, i.e. the six months have expired; and (2) either (a) he has given three months' notice in writing demanding immediate payment and stating that he will sell if the money is not paid; or (b) some interest under the mortgage is two months in arrear; or (c) there has been some breach of the covenants in the mortgage (other than the covenant to pay the money lent and interest).
V. To appoint a Receiver. - If the mortgage was made by deed after 1881 (gg) the mortgagee has an
(e) 23 & 24 Vict. c. 145, and see Goodeve, R.P. 391 and 394. (f) i.e. after the 31st of December, 1881. (g) S. 20.
(gg) Lord Cranworth's act also gave power to appoint a receiver; hut this was too stringent against the mortgagor, and was therefore often modified.
implied power to appoint some person to receive the rents and profits of the land and to apply them in payment of the interest due under the mortgage (h).
Mortgage deeds before 1881 usually provided that the mortgagee should have power to nominate some person who should act as the agent of the borrower to collect the rents of the land, and, after paying the interest to the mortgagee, pay the rest of the rents to the borrower.
A receiver so appointed is the agent of the mortgagor, consequently the mortgagee gets the advantage of having some person whom he can trust to collect the rents and pay the interest, without the liabilities which he would incur if he were to take possession himself or by his own agent.
A receiver can only be appointed in this way when the power of sale has become exercisable.
That is to say, the conditions which apply to a power of sale, viz. 3 months' notice, etc., apply also to the appointment of a receiver.
By the same section 19 the mortgagee is given power to insure the mortgaged property, and to add the amount of the premiums to the capital sum secured by the mortgage.
The mortgagee can exercise all or any of these remedies, and the fact that he has exercised one does not prevent him from exercising the others so long as he has not been paid in full.
Thus, if he sues on the covenant and recovers judgment, but cannot get paid, he may sell, or apply to the court for foreclosure.
If he sells the land and does not recover sufficient to pay the whole debt, he may sue for the ba ance.
If he forecloses and does not feel satisfied, he may sue for the whole debt; but if he does this,
(h) S. 19(l)(iii).
he gives the mortgagor another chance of redeeming; for if the mortgagor pays the debt and interest, the foreclosure is "opened up" and the land must be re-conveyed to him.
Right to make Leases. - The mortagee, if in possession, can make building leases of the land for 99 years, or occupation leases for 21 years. See p. 233.
Statute of Limitations. - If a mortgagee enters into possession of the land and remains in possession for 12 years without acknowledging the title of the mortgagor, the equity of redemption is barred, and the mortgagee becomes absolutely entitled to the land.
This is the effect of the Real Property Limitation Act, 1874 (i).
Similarly a mortgagor who remains in possession for 12 years without paying interest becomes entitled to the land free from the mortgage.
And if no interest is paid on the mortgage debt for twelve years, the right to sue for the debt itself is barred (k).