A person's home is usually his or her largest asset and will usually be financed in part by a mortgage. The law recognises both the substantial amount of money involved and the owner's likely emotional attachment to the property, and seeks to strike a balance between the rights and interests of the mortgagee (the lender) and the mortgagor (the borrower).
While the rights of mortgagees are extensive in order to ensure that their interest is protected, at the same time the law requires that they comply with strict limitations and procedures in dealing with the mortgagor's property. The rights and obligations of mortgagees are found in the PROPERTY LAW ACT 1952.
The statutory rights of the mortgagee (lender) include:
There are also special rights where the mortgage is over a lease or a unit title.
A mortgagee is entitled to charge interest on any money advanced. There is no legal limit on the rate of interest that may be charged; the interest is normally a matter to be agreed on between the mortgagor and mortgagee.
Under the Credit Contracts and Consumer Finance Act 2003 a mortgagee must not act oppressively, and if he or she does so, this is a ground for the court re-opening the mortgage contract. However, if the parties are dealing with each other on equal terms and there is no abuse of the mortgagee-mortgagor relationship, a high interest rate (and an even higher penalty interest rate) does not in itself amount to oppressive conduct. (See How to get out of a loan contract, credit sale (hire purchase agreement) or other consumer credit contract).
When a mortgagor fails to honour his or her obligations (for example, failing to make a payment due under the mortgage), you as mortgagee cannot exercise the remedies of taking possession of or selling the property unless you first serve the mortgagor with the appropriate notice under the PROPERTY LAW ACT 1952.
This notice must set out:
As a mortgagee you are not entitled to prevent the mortgagor's right to redeem. This means that the mortgagor is entitled to repay money owing under the mortgage before the due date specified in the contract.
A mortgagor who pays off a mortgage before the due date must pay the mortgagee all amounts owing under the mortgage and, in addition, interest on the principal sum for the remaining period of the mortgage according to the contract.
A mortgagee may not attempt to gain some additional advantage from the mortgagor other than full repayment of the loan principal and interest, and costs and expenses. Therefore if the mortgage transaction includes some other agreement giving the mortgagee a further advantage â€“ for example, that the mortgagor will buy certain goods only from the mortgagee â€“ that other agreement will be void.
It is not uncommon for a mortgagor to take more than one loan out on the same property. If you are a mortgagee in that situation it is advisable that you register a memorandum of priority, which will secure your interest ahead of the other mortgage or mortgages if the mortgagor becomes insolvent.
The LAND TRANSFER ACT 1952 allows for the terms of a mortgage to be altered, including:
The variation of the terms of the mortgage must be agreed to in writing by both the mortgagor and the mortgagee.
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