COVID_19 has caused many businesses to revamp their operations in an attempt to find the most suitable way to navigate this ‘new normal’ which we are all now faced with today. At the onset of COVID_19 many Auction houses closed their doors temporarily as the risk of exposure to the virus was real and imminent.
The adverse impact COVID_19 had on the real estate industry in this regard forced stakeholders in the real estate sector to look at alternative ways of operating business. We have now seen the emergence of virtual auctions as a solution to the challenges faced. The idea of virtual auctions is one that must be considered as a way forward as it will not only help with mitigating the risk of exposure to the corona virus but also can increase visibility and participation in public auction.
While we celebrate this idea and believe that it’s a step in the right direction, it is imperative that the proper procedure required for exercising power of sale is still followed by mortgage institutions in order to safeguard their rights and interest and prevent any exposure to liability from the mortgagor.
Here are a few things all mortgagees should always bear in mind:
1. Search the title to find out whether the mortgage is actually registered on the title, reconcile the details of the mortgage against the information contained on the title including the description of the registered proprietor, the property, and the principal sum borrowed to ensure all the information is accurate.
2. Carefully read through the Mortgage Deed which sets out the conditions of the mortgage and the circumstances in which a mortgagee can exercise its power of sale. Most Mortgage Deeds will adopt the provisions of the Registration of Titles Act (“RTA”) in respect to the mortgagees right to exercise its power of sale.
3. Before proceeding to Public Auction the mortgagee should ensure that the mortgagor is in default in payment of the principal sum, interest or annuity secured or any part thereof for at least one month.
4. The RTA provides that the mortgagee may serve the mortgagor with a notice in writing to pay the outstanding money. This notice served on the mortgagee directly, or can be left on some conspicuous place on the mortgaged property or can be sent through the post office by a registered letter directed to the mortgagor at the address appearing in the title. It is important to ensure that the mortgagee is aware of the notice if the mortgagor decides to serve a notice. In practice, most mortgagees will use all methods of service available to them in order to ensure the mortgagee is aware.
It has been argued in the past that the mortgagee is not obligated to give notice of the default as the provision in the RTA uses the word “may” which suggests that it is discretionary. You will even find that some Mortgage Deeds do not provide for the need for service of notice. Nevertheless, we highly recommend that mortgagees serve notice on the mortgagor as it adds to transparency and gives the mortgagee the opportunity to remedy the default. In circumstances where the mortgagee has made an error and the mortgagor is actually not in default, such a notice can be a saving grace for the mortgagee.
5. The RTA also provides that if the default in payment continues for one month after the notice is served the mortgagee can sell the mortgaged property by public auction or by private contract without any liability to the mortgagor. It is practice in Jamaica that the property is first put up for sale at public auction and if not successfully disposed then the mortgagee can proceed to sell same by way of private treaty.
6. It is recommended that the mortgagee engages the services of a qualified and reputable Auctioneer to ensure the auction is conducted properly. The mortgagee must ensure that the Auctioneer advertises the property for sale by way of Public Auction to ensure it is brought to the attention of potential bidders. The description of the property in the advertisement must be clear with sufficient details to attract bidders.
7. The Courts have outlined certain duties owed by the mortgagee in exercising its power of sale. A mortgagee must take reasonable steps to obtain a true market value of the mortgaged property at the date on which he decides to sell it. It is recommended that mortgagees engage the service of a reputable valuator to obtain the market value of the property being sold to absolve themselves of any allegations of impropriety. The mortgagee can use the Valuation Report to determine a reserve price for the purposes of the Auction. This is the price that all bids should start at. The reserved price, valuation report and Particulars and Conditions of sale must all be sent to Auctioneer prior to the Auction date.
8. A mortgagee should not sell the mortgaged property to himself, any of its officers, or any attorney or other agent acting in the sale.
These are just a few reminders of some important guidelines for mortgagees exercising its power of sale pursuant to the RTA and/or its mortgage deed. It is important that mortgagee, whether an institution or individual, engage the services of an attorney to provide the guidance needed to ensure that their rights and interest are safeguarded.
Natasha Rickards is an associate at Myers, Fletcher and Gordon, and is a member of the firm’s Property Department. She may be contacted at email@example.com or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.