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Rights of a mortgagee
The objective of the mortgage is to give security to the lender. At any time after the date that the repayment of the loan is due under the mortgage, the mortgagee has the following remedies.
- Repayment,
- Power of sale,
- Receiver,
- Foreclosure.
Repayment
The deed will contain a clause obligating the borrower to repay the mortgage and if they do not do so within three months of that date then the mortgagee has the right to sue them for breach of this covenant.
The loan can not be called in before the date in the deed. The option of going to court to request repayment is seldom used because it is unlikely that the borrower will be able to repay the loan.
Power of sale
If the mortgage has been signed under deed then the mortgagee has the right, without going to court to, to sell the property to recover the loan with the balance from the sale being paid over to the mortgagor. The deed may contain a power of sale clause but if not this right exists at law under section 101 of the Law of Property Act 1925.
Section 104 of the same act provides that the mortgagee when exercising the power of sale can convey the property free from any interests over which the mortgagee had priority but always subject to any interest which had priority over the mortgage. A receipt by the purchaser of the property from the mortgagee is sufficient to show that they own the property fee from other interests and the purchaser does not have to concern themselves whether or not the mortgagee exercised that right correctly.
It is considered that the mortgagee would have similar rights over the life policy on the basis that a ‘surrender’ is equivalent to a power of sale.
In order to sell a house that is mortgaged the mortgagee will often have to apply to the court for an order of possession. The court can suspend that order (under section 36 of the Administration of Justice Act 1970) if they are of the opinion that the borrower has a good chance of repaying outstanding interest over the term of the loan.
Receiver
The mortgagee can appoint a receiver to take possession of the property and to receive any income from the property which can be used to reduce the mortgage debt. This may be practical where there is a rental income or possible rental income but it is virtually never used with life insurance policies.
Foreclosure
The mortgagee can apply to the court for an order of foreclosure. The court will, if it grants the order, instruct the mortgagor to repay the debt by a certain date, usually 6 months. The order will be made nisi, and if the mortgagor does not make repayment by that date then the mortgagee becomes the full owner of the property. The order of foreclosure has the effect to vesting legal ownership of the property in the hands of the mortgagee and the mortgagor looses his right to equity redemption.
The mortgagee can then do what they like with the property, they can keep it or sell it and they do not have to account to the mortgagor for any balance over and above the mortgage debt.
The mortgagee proof of ownership is the order of foreclosure absolute which requires stamping as a conveyance sale.
The court as an alternative may order a judicial sale in which case the court manages the sale with the mortgagees debt being paid of first and the balance, if any, going to the mortgagor.