Enforcement of the Mortgage
The mortgagee can enforce a mortgage against the mortgagor personally and /or by way of enforcement of the security. Security can be enforced by any of the following means;
- appointment of a receiver;
- taking possession peacefully and sale out of court,
- court order for possession and sale out of court,
- court order for sale,
- foreclosure
The court order for sale and foreclosure are rarely used or necessary. A court order for sale is generally only required where the mortgage has not been created or has not been properly created. A foreclosure action is a declaration by the court that the mortgagor’s rights to the property are extinguished.
The most common method of enforcement is by use of the mortgagor’s power of sale in the mortgage deed. It may or may not be necessary to obtain a court order to obtain possession. It may be possible to obtain possession peaceably or it may be possible to sell with a tenant in place.
The right to exercise the power of sale usually arises when there has been a default. The full monies also become due or demandable on default and all personal and security rights can be enforced, subject to the terms of the mortgage. Commonly, a demand must be made for the full monies become immediately due. The Law of Property Act specifies when the power of sale is exercisable, but this can be amended by the mortgage. This is usually done so that the powers may be exercised with minimum restrictions.
General
A loan offer on property will generally require a first legal charge or mortgage over the property concerned. If the mortgage has not been created for whatever reason, then the bank has a contractual right to have it completed. The loan offer constitutes an equitable mortgage by reason of the agreement to provide the mortgage. This equitable mortgage ay be enforced by a court order.
The mortgagee has the right to the title deeds. The practical importance of this has diminished in England and Wales, due to the almost universal Land Registry system and the dematerialisation of the title deeds.
The mortgagor is entitled to protect the mortgaged property from deterioration or diminution in value. A mortgagee can, for example, pay insurance to keep the insurance policy in place. It may pay an apartment service charge in order to remove the risk of the long lease under which the property is held, being forfeited. It can take possession to prevent vandalism. A mortgagee can spend money to preserve the property.
In a mortgage by deed, a mortgagee has power to insure against loss and damage to the property. Premiums are a charge on the property as an addition to the mortgage money with the same priority. Interest is payable on them at the same rate. This power can be changed by the terms of the mortgage deed.
Money received under an insurance policy effected by law must be applied by the mortgagor in making good the loss or damage. The mortgagee may require that all sums received under such insurance be applied towards discharge of the mortgage money.
Other Enforcement
A mortgagee is generally entitled to exercise all of its rights at the same time or at the time of it choosing. It can, for example take court action for judgment for payment of monies due and also take the action for possession of the secured property. The borrower is personally liable for the loan amount, unless the mortgage or loan offer states that it is limited to recourse to the property only.
A mortgagee who sells the property after a foreclosure cannot rely on the borrower’s personal covenants. However foreclosure is rarely used.
The mortgagee is most likely to sue in a personal claim, only where there is a shortfall on sale of the security. If the mortgagee sues on the debt and the mortgagee satisfies the judgment, he is entitled to have the security returned.
Time Limits for Legal Action
A personal claim on a debt must be taken to court within six years of the date on which it fell due. If this is not done, the right to sue will be lost. The time runs from the date on which the right to receive the money arises. There are certain important exceptions to this rule.
The period in which to take court action may be taken, generally starts on the date of default. A written acknowledgement of liability by the borrower usually starts the period running again. An acknowledgement must be in writing and signed by the borrower. A part payment also starts the period again.
Action to enforce the mortgage or bring a claim for possession must be taken within 12 years after the entitlement first arose. After that time period, legal action cannot be taken.
