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Rights of The Mortgagee
Introduction:
In a previous note, we discussed the rights of the mortgagor. In this note, we will discuss the rights of the mortgagee. In particular, the note will discuss the right of the mortgagee to possess title documents, the power of sale, and the appointment of a receiver on default, among others.
1. Right to Sue the Mortgagor:
In Section 6 of the Mortgages Decree, 1972 (NRCD 96), it is provided that
Unless a contrary intention appears expressly or by necessary implication, the mortgagor shall be personally liable, as well as liable on the mortgage security, for the performance of the act or acts secured by the mortgage.
This personal liability can be enforced through an action.
In Section 15(a), it is also provided that
Upon failure of performance of an act or acts secured by the mortgage the mortgagee may do either or both of the following:—
(a) sue the mortgagor or obligor or both on any personal covenant to perform;
See the case of Republic v. High Court, Accra; Ex Parte Chinto [1993-94] 1 GLR 159—171, where the court held that if the mortgagee decides to sue the mortgagor, the mortgagor must be a party to the action.
2. Right to Possession of Title Documents:
In Section 10(1) and (2) of NRCD 96, it is provided that
(1) Unless a contrary intention appears expressly or by necessary implication, as against the mortgagor the prior mortgagee shall be entitled to possession of all of the mortgagor's title documents which relate exclusively to the mortgaged property.
(2) Unless a contrary intention appears expressly or by necessary implication, where during the life of the mortgage the mortgagor becomes entitled to possess any title document relating exclusively to the mortgaged property it shall be the duty of the mortgagor to deliver that document to the then prior mortgagee.
It must be noted that under NRCD 96, the mortgagee is only possessing the title deeds, which still bear the name of the mortgagor. There is no transfer of title or change in ownership.
It must also be noted that the parties can decide that the title documents will be possessed by the mortgagor.
Once the title documents are in the possession of the mortgagee, Section 10(3) of NRCD 96 places an obligation on him to keep them whole, uncancelled, and undefaced. Failure to do so will attract liability in an action for damages.
Also, Section 10(4) allows the mortgagor to inspect and make copies or extracts from the title documents at any reasonable time.
3. Appointment of a Receiver by the Court Following an Application by the Mortgagee:
Where the mortgagor fails to perform the act secured by the mortgage, Section 16 of NRCD 96 provides that the mortgagee may apply to the court for the appointment of a receiver who will take possession of the mortgaged property, take all income accruing to it, and use it to, among others, pay all the interest under the mortgage and towards the discharge of any principal amount due under the mortgage.
4. Right to Possession of the Mortgaged Property if the Mortgagee Fails to Perform an Act Secured by the Mortgage:
In Section 17(1) of NRCD 96, it is provided that
Upon failure of performance of an act or acts secured by the mortgage the mortgagee shall be entitled, as against the mortgagor and any person deriving an interest in the mortgaged property through him whose interest is subsequent to that of the mortgagee, to possession of the mortgaged property, except that in the case of default in the payment of principal or interest secured by the mortgage, the mortgagee's right to possession may be exercised only after thirty days' notice in writing to the mortgagor or such longer period as the mortgage may provide.
This provision covers two situations:
5. Power of Sale:
A. Requirement for a Court Order of Judicial Sale of Mortgaged Property:
Where the mortgagor fails to perform his obligations under the mortgage, NRCD 96 empowers the mortgagee to apply to the court for an order for the judicial sale of the mortgaged property.
In Section 18(1) of NRCD 96, it is provided that
Upon failure of performance of an act or acts secured by the mortgage the mortgagee may apply to the court for an order for the judicial sale of the mortgaged property, and upon being satisfied as to the existence of grounds for the application the court shall, upon such conditions as it deems just and equitable, grant an order for judicial sale of all or part of the mortgaged property.
That is, without an express court order, the mortgagee cannot sell the mortgaged property.
B. Factors Considered by the Court in Ordering Judicial Sale:
Before the court grants the order, Section 18(2) provides that it shall “have regard to what opportunity, if any, the mortgagee has afforded to the mortgagor or obligor or both to remedy the failure of performance.”
C. Manner of Judicial Sale:
In Section 18(3), it is provided that
A judicial sale ordered under this section shall be by public auction unless the mortgagor and all encumbrancers subsequent to the mortgagee requesting the judicial sale and of whom he has notice at the time of the sale agree to a private sale and the terms of the sale are approved by the court.
D. Requirement for Mortgagee to Give Notice to the Mortgagor before Judicial Sale:
If the court grants the order, Section 18(4) provides that prior to the sale, the mortgagee requesting the judicial sale shall give reasonable notice of the sale to the mortgagor and every encumbrancer of whom he has notice.
If the mortgagee fails to give said notice, Section 18(5) provides that the sale is still valid, but the mortgagee shall be personally liable for any loss caused thereby.
E. Persons Who Can Purchase the Mortgaged Property:
At the public auction, Section 18(6) provides that, in addition to other members of the public, the following can also purchase the mortgaged property:
However, where there is a purchase of the mortgaged property by the mortgagee who requested the judicial sale, Section 18(6) provides that it shall not take effect until approved by the court.
F. Judicial Sale and the Right to Redeem:
In Section 18(9), it is provided that
Notwithstanding any provision to the contrary in the mortgage a judicial sale ordered under this section shall be the only manner in which a mortgagee may foreclose rights to redeem the mortgaged property.
Per Black’s Law Dictionary, to foreclose is to “terminate a mortgagor's interest in property.” It will be remembered that in a previous note, it was emphasised that the mortgagor has a right to redeem the mortgaged property. Where a judicial sale is ordered, the right of the mortgagor to redeem the mortgaged property is foreclosed (ended).
6. Right to Consent before the Transfer of the Mortgaged Property:
In Section 12A of NRCD 96, as inserted by the National Mortgages, Financing and Guarantee Scheme Decree, 1976, it is provided that:
A mortgagor under a mortgage to which this Decree applies shall not transfer any interest in the mortgaged property under section 12 of the Mortgages Decree, 1972 (NRCD 96) without the consent in writing of the mortgagee.
A similar provision is repeated in Section 149 of the Land Act, 2020 (Act 1036), as follows:
Where a mortgage in respect of a registered parcel or interest in land contains an agreement that the mortgagor shall not dispose of the land,
- by a particular form of transfer, or
- by a transfer without the consent in writing of the mortgagee,
the agreement shall be noted in the register and a transfer by the mortgagor contrary to the agreement, shall not be registered until the written consent of the mortgagee has been verified in accordance with section 164 and produced to the Land Registrar.
Conclusion:
This note discussed six rights of a mortgagee under a mortgage. The rights include the right to sue the mortgagor, to apply for the appointment of a receiver and for judicial sale.