The mortgagee’s main rights arise upon default by the mortgagor. There are two main remedies in the event of the borrower defaulting on the loan.
A mortgagee’s power of sale is usually contained in the memorandum of mortgage. Under the Transfer of Land Act s.77 if the mortgage is registered there is a power of sale given to the mortgagee. If there is no express contractual term then there is no power of sale where you have an unregistered equitable mortgage.
The exercise of the power of sale of a mortgagee to sell the mortgaged premises upon default of the mortgagor is regulated by statute and limited to registered mortgagees.
Generally, a mortgagee is not permitted to exercise the power of sale conferred by statute or under the mortgage unless and until:
a) Default has been made in the payment of the principal money or interest; and
b) Notice requiring payment of the amount the failure of which to pay constitutes the default has been served; and
c) Default has continued for a space of 30 days (or one calendar month as the case may be) from the service of the notice;
d) Default has been made in the observance or fulfilment of some provision contained in the mortgage or implied in the Act on the part of the mortgagor to be observed and performed; and
e) Notice requiring the default to be remedied has been served; and
f) Such default has continued for the space of 30 days from the service of the notice.
This power does not apply to unregistered mortgagees.
Any equitable mortgagee who wants to enforce the security by sale must seek to have the mortgage registered or seek an order for foreclosure in the event of default.
No power of sale whether expressed in memorandum or given by statute may be exercised unless the mortgagee has served the mortgagor with a notice giving the details of the alleged default and allowing the mortgagor a period of at least one month from the receipt of notice to remedy the default.
The scope of the mortgagee’s duty to obtain a fair market price is not clear under Victorian Law. On the one hand it has been said that the mortgagee is not like a trustee for the mortgagor, but the British Privy Council has said that it is the duty of the mortgagee to act ‘as a reasonable man would behave in the realisation of his own property’ McHugh v. Union Bank of Canada  AC 299 at 311 and see Alexandre v. New Zealand Breweries Ltd  1 NZLR 497. The mortgagee may not act fraudulently or sacrifice the property at a patently low price. A Queensland case has held that damages may be awarded against the mortgagee in certain circumstances for failing to exercise power of sale Higton Enterprises Pty Ltd v. BFC Finance Ltd  1 Qd R 168. In that case, a guarantor who suffered damages by the defendant’s breach of duty was able to claim damages. See also Permanent Custodians Ltd v. AGB Development Pty Ltd  NSWSC 540.
The Mortgagee can enter into possession of the mortgaged property (TLA s.78), not necessarily physical possession, more commonly assuming management and control of the property, taking any rents or other income from it e.g. by giving formal notice to any tenant to pay rent directly to the mortgagee.
TRANSFER OF LAND ACT 1958 – SECT 78 : POWER TO MORTGAGEE OR ANNUITANT TO ENTER INTO POSSESSION OR BRING EJECTMENT
(1) The mortgagee or annuitant upon default in payment of the principal sum or interest or annuity or any part thereof respectively at the due time:
a) may enter into possession of the mortgaged or charged land by receiving the rents and profits thereof; or
b) may bring an action of ejectment to recover the land, either before or after entering into the receipt of the rents and profits and either before or after any sale of the land as aforesaid.
(2) A mortgagee of or annuitant upon leasehold land after entering into possession of the land or the receipt of the rents and profits thereof shall, during such possession or receipt and to the extent of any benefit rents and profits which are received, be subject to and liable for the payment of the rent reserved and the performance and observance of the covenants contained or implied in the lease on the part of the lessee.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.
For any further information concerning this article, please contact Michael Pickering, Principal, Judicate Lawyers – Barristers and Solicitors of Unit 11 / 233 Cardigan Street, Carlton, Victoria, 3053. His contact details are as follows: