United States Legal Documents


Homestead declarations

US homestead declarations allows homeowners to protect the home against creditors' claims.

6

How to raise a mortgage

Introduction

You have decided that you wish to make a purchase or embark on an activity for which you have insufficient cash; consequently, the only way you can proceed is by obtaining credit. In order to do this you will need to satisfy a lending institution's lending criteria. This is likely to involve careful consideration of your assets and liabilities, your income and expenditure, and also your credit history.

Accordingly, before you approach a lending institution it is important to consider the amount of surplus income you have each fortnight that could be applied toward loan repayments. You should also consider unforeseen events, such as what would happen if you lost your job, if you were to die, or if interest rates were to escalate dramatically.

There are various sources of funds, often offering similar terms. You should approach your own bank first and then compare its loan offer with other banks or finance institutions. Alternatively, you may consult a mortgage broker.

Obtaining a home mortgage

When a lending institution agrees to lend you funds it will often require rights over your assets. If you have a house then the lender will wish to take a mortgage over the house. A mortgage gives the lender security for the funds lent to you; therefore if you fail to honour your commitments the lender will be able to exercise its rights over your house either by taking possession of it and earning income from it, or by selling it. These rights are in addition to the right to sue you for your breach of the loan contract.

People commonly refer to the loan they have obtained to buy a house as their "mortgage". However, the mortgage and the loan, although related, are in fact different: the mortgage is the lender's security for the loan.

Registration of the mortgage

The lending institution will instruct your solicitor to act on the lender's behalf to register a mortgage over your property in favour of the lender. This will involve your solicitor obtaining the title deed to your property and then lodging this deed in the local office of the Land Titles Service, together with a mortgage document that the solicitor has had typed up with all the relevant details and that has been executed and signed by you.

The lender's rights under the mortgage

With the registration of the mortgage, the lender gains a legal interest in your property. You are obliged to consider the lender's interest when you are dealing with your property.

Under the mortgage you have an obligation to honour your commitments under the loan agreement (which you will have signed in front of a lending officer or your solicitor), to pay your rates and insurance, and also to maintain the value of your property by ensuring that if you are carrying out any developments of it that you obtain the relevant building consents or resource consents.

For more information, see How to know your rights and obligations as mortgagee (lender). See also How to obtain a building consent.

The lender holds the title deed until the mortgage is discharged

The lending institution holds the title deed to your property with the mortgage until the loan is repaid and you have requested that the mortgage be discharged.

Note that the lender will not attend to the discharge of the mortgage automatically when the loan has been repaid; rather, you will need to request the lender to do this.

Other rights and obligations under the mortgage

In addition to the rights to collect income from the property or to sell the property if you default on the loan agreement, a mortgage may give a number of other rights to the lender or impose a number of obligations on you. You should give careful consideration to the terms and conditions of both the mortgage and the loan agreement so that you are fully aware of your responsibilities.

Refinancing your mortgage

Where you are raising a loan to repay an existing loan it is important that you calculate carefully the costs involved in completing the refinancing. These can be high, particularly if the existing loan is on a fixed interest rate, and therefore savings on repayments do not always justify the expense of refinancing. The costs may include bank administration fees, valuation fees, registration fees and solicitor's costs.

Cautionary notes
  • When you obtain a loan it may be worthwhile arranging insurance cover for risks such as your death. If insurance cover is in place for the amount of the mortgage it will mean that the mortgage will be repaid on your death, and accordingly there will be no risk that your property might have to be sold, leaving your dependants needing to find alternative accommodation.
  • A prospective borrower should be particularly careful in calculating the costs involved and the amount of the loan repayments. If need be, you should seek professional help.

How to know your rights and obligations as mortgagee (lender)

Introduction

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 rights of mortgagees

The statutory rights of the mortgagee (lender) include:

  • the right to transfer his or her interest to a third party
  • the right to sue the mortgagor personally if the mortgagor is in default under the mortgagor's "personal covenant" to pay the debt (rather than the mortgagor enforcing the security under the mortgage by taking possession of or selling the property)
  • the right to enter into possession of the property or to exercise the power of sale if the mortgagor defaults in making the necessary payments under the mortgage
  • the right to sub-mortgage

There are also special rights where the mortgage is over a lease or a unit title.

Are there limits on the Interest rate that can be charged?

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).

The procedure where the mortgagor defaults in payments

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:

  • the nature and extent of the default complained of
  • the date by which the default must be remedied (if it is capable of being remedied)
  • the rights you as mortgagee are entitled to exercise if the mortgagor does not remedy the default within the specified period

The mortgagor's right to redeem

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.

Mortgagees entitled to no more than full repayment

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 – for example, that the mortgagor will buy certain goods only from the mortgagee – that other agreement will be void.

How do I protect my interest if there are other mortgagees?

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.

Varying the terms of the mortgage

The LAND TRANSFER ACT 1952 allows for the terms of a mortgage to be altered, including:

  • increasing or decreasing the amount or rate of interest
  • shortening, extending or renewing the term of the mortgage
  • altering any of the powers contained or implied in the mortgage

The variation of the terms of the mortgage must be agreed to in writing by both the mortgagor and the mortgagee.

Cautionary notes
  • The information given above is only a brief outline of an area of law that is comprehensive and at times complex. If you intend to lend money through a mortgage it is advisable that you consult a lawyer familiar with this area.
  • In exercising your rights as a mortgagee the courts strictly enforces the relevant procedures and time limits that must be followed. You should therefore familiarise yourself with all the relevant requirements.
  • Different provisions exist if you as mortgagee are in possession of the property in question.

How to know your rights and obligations as mortgagor (borrower)

Obligation to repay the loan principal and interest

If you borrow money under a mortgage, your most obvious and important obligation is that you must repay both the principal amount borrowed and the interest.

Can I challenge the interest rate?

The mortgagee (the bank or finance company that lends you the money) 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 you and the mortgagee.

Under the Credit Contracts and Consumer Finance Act 2003 a mortgage contract can be re-opened by the court if one of its terms is oppressive or if the mortgagee acts oppressively (see How to get out of a loan contract, credit sale (hire purchase agreement) or other consumer credit contract). But a high interest rate will not in itself be a ground for re-opening the contract: in general there will need to be some other element before the court will intervene, such as an unequal bargaining relationship between you and the lender, or an additional agreement attached to the loan agreement (see also "Mortgagees entitled to no more than full repayment" below).

Repayment of the mortgage amount

As a mortgagor you have the right to repay the mortgage, either:

  • before the due date
  • on the due date
  • after the due date has expired and the mortgagor has served you with a notice of default (under section 92 of the PROPERTY LAW ACT 1952; see below)
  • before the mortgagee exercises its power of sale (see How to defend a mortgagee's right to power of sale)

This right is known as the "equity of redemption", and the mortgagee is not permitted to "clog" your right of redemption. This means that the mortgagee is not allowed to prevent the early repayment of a mortgage.

Mortgagees entitled to no more than full repayment

Further, a mortgagee may not attempt to gain some additional advantage from you 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 – for example, that you will buy certain goods from the mortgagee and from no-one else – that other agreement will be void.

The mortgagee is also not entitled to include in the mortgage agreement an option to buy the property concerned.

What happens if I can't make the mortgage payments?

If you default in making your mortgage payments when they are due, by law the mortgagee has a series of rights that it may exercise. Ultimately the mortgagee will wish to recoup the money it is owed, and this is usually achieved by exercising its power of sale under the PROPERTY LAW ACT 1952.

Before the mortgagee can take any action to sell the property, it must issue you with the proper notice under section 92 of the PROPERTY LAW ACT 1952 (see How to defend a mortgagee's right to power of sale).

This notice must set out:

  • the nature and extent of the default complained of
  • the date by which you must remedy the default (if it is capable of being remedied)
  • the rights that the mortgagee is entitled to exercise if you do not remedy the default by the specified date

The date specified must be at least four weeks from the date on which the notice is given. But if the mortgage contract specifies a period for this that is longer than four weeks, the date specified in the notice cannot be earlier than the end of that longer period.

Cautionary notes
  • The most usual form of security given to a mortgagee under a mortgage is a person's home, which is usually his or her most valuable asset. If the mortgage is over a family home the MATRIMONIAL PROPERTY ACT 1976 and the JOINT FAMILY HOMES ACT 1964 have provisions that must be taken into account by both the borrower and the lender (see How to: Division of property under the Matrimonial Property Act and How to apply for a joint family home).
  • Mortgages involve lengthy documents that are full of legal and technical terms. Because the consequences of a mortgagor defaulting under a mortgage are usually severe, anyone intending to enter into a mortgage contract should seek legal advice from somebody experienced in this area of law.

How to defend a mortgagee sale

Introduction

If you fail to make the payments due under a mortgage on your home, the lender (the "mortgagee") has the right to recoup the loan amount through exercising the powers contained in the mortgage contract. Usually this is done through the power to sell the property.

The mortgagee must, however, fulfil certain strict legal requirements, including serving you (the "mortgagor") with the proper notice. If these requirements aren't met then you may be able to apply to the court for a remedy.

Mortgagee must serve you with notice before taking action

Before taking action the mortgagee must serve you with a notice under section 92 of the PROPERTY LAW ACT 1952. This notice must adequately inform you of:

  • the nature and extent of the default complained of (that is, the amount by which you are in default)
  • the date by which you must remedy the default
  • the rights that the mortgagee is entitled to exercise if you don't remedy the default by the specified date

The date specified must be at least four weeks from the date on which the notice is given. But if the mortgage contract specifies a period for this that is longer than four weeks, the date specified in the notice cannot be earlier than the end of that longer period.

If you receive a notice from your mortgagee that does not comply with the legal requirements, you may be able to apply to the court for an injunction to prevent the sale going ahead. Further, if the mortgagee exercises the power of sale before the date specified in the notice, you may also be able to apply to the court for a remedy.

The mortgagee's duty to obtain the best price

The mortgagee has a statutory duty to take reasonable care to obtain the best price reasonably obtainable as at the time of sale. If the mortgagee breaches this duty, you can apply to the court for a remedy.

To satisfy the duty the mortgagee must adequately market the property, which may involve advertising outside the local area, giving notice of the property's advantages (including the potential for any development), and setting a realistic reserve price based on the property's valuation.

Three ways of exercising the power of sale

The mortgagee can exercise the power of sale in one of three ways:

  • sale through the High Court Registrar
  • sale through public auction
  • a private sale

Sale through the Registrar

If the mortgagee chooses to exercise its power of sale through the High Court Registrar, it must apply to the Registrar and notify the Registrar of the name and address of the mortgagor and of any other mortgagee. The Registrar must be satisfied that the mortgagee is entitled to exercise its power of sale.

A mortgagee is entitled to buy the mortgaged property only if the sale is conducted through the Registrar.

Your right to redeem the property

There is a small degree of protection afforded to you, the mortgagor, through the "redemption price" – this is the price at which you may redeem the land to be sold. At any time before the Registrar's sale you may pay the redemption price or the amount due and owing under the mortgage; the mortgagee must then release the mortgage.

The redemption price is set by the mortgagee, and must be specified in the mortgagee's application to the Registrar to conduct the sale. Any advertisement for the mortgagee sale must state that the redemption price is available at the Registrar's office and can be obtained before the auction.

Cautionary notes
  • If there is a second mortgage over the property, the first mortgagee owes, in exercising the power of sale, a duty to the subsequent mortgagee to obtain the best price possible for the property.
  • For advice on applying to the court for an injunction or other remedy against the mortgagee, you should consult a lawyer.

NZ$19.95

A homestead law helps to protect you from losing your home to creditors.

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NZ$19.95

A homestead law helps to protect you from losing your home to creditors.

Document Delivery Format:Delivery format: Download MS Word or PDF file
Document Source:Complies with US and State law
Document User Guide Available:General instructions and checklist
Document Assembly Method:User fills in template blanks
Document Preview/Sample Available:Document preview: Download partial view of document
Help Support Email/Telephone:Limited - not legal advice
Country:US jurisdiction
State:na
MainSiteUrl:www.findlegalforms.com

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United States
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