What Happens When You Default on the Mortgage on Your Property

Manage-Risk-1-300x300Hi All,

So you have defaulted on your mortgage despite everything I’ve told you. I’m sorry to hear that, but it happens.

Many people fall short of their obligations or simply fail. Look at Donald Trump. He had all those bankruptcies and is now a billionaire running for President of the United States.

This is what this post is about. The important thing is not that you messed up but how you handle messing up.

I know many of you look at your house and see the time and energy you put in. You can say why you picked that hideous colour for the feature wall and still laugh when you recall Junior’s mishap with the gardening tools on your parquet floors. It is an emotional investment. I get it.

However, you really should also remember that you entered into a business deal. Yes, every mortgagor is a businessperson. The mortgage really came about because you wanted to invest in property, whether for its own sake, or for your family, or for a space to live. Some even pay their spouse’s or friend’s gambling debts or go on a world cruise because their next door neighbours won’t shut up about theirs – called investing in experiences (YOLO!). The Bank wanted to invest in your loan in the hope of getting a substantial, reliable return. So you both are partners, the Bank bringing the seed money.

Now, in this mind-set look at your options. First, you need to reassure your partner you’re still good for the return before it demands all its money and gets out of the venture. As I’ve said previously you have a couple things in your favour: one, the Bank (Mortgagee) will do its best to keep its investment if there is any hope you can still pay, and two, the Bank can usually forgive defaults if you rectify it in a timely manner.

meetingTherefore, the first thing you do is call your partner, the Bank, via your liaison officer, explain why you are in default and say when you can rectify it. I know you may think that she does not know, so why draw attention to yourself? This thinking is from 1827, as if your mortgage account involves a dusty ledger and an accountant with undiagnosed dementia who checks it once a year. No. This is the twenty-first century. It’s all automated now. The day after the system does not see your payment, or you didn’t submit that insurance certificate or you missed a loan payment on some other facility, a report is generated that shows up from her supervisor to as far as a certain northern parent company who is wondering if its investment in you is suspect and if it should cut its losses before the shareholders find out. If the Bank takes too long to issue a notice to you, the officer in the parent company may actually call or email that poor liaison officer and make sure she calls, writes or emails you. So not only will you be showing you are honest and trustworthy by calling her first, you will be making her life easier as well, which makes people more disposed to giving you a little ease. If you handle it right, most likely you and the Bank will stay partners well into the future.

If you’re saying you really can’t pay, that you’ve lost your job and cannot find another or have become disabled and you can no longer pay for the multi-million dollar condo at Rockley Resort you still owe a king’s ransom on, then that’s where it gets complicated.

Well, the prudent, obvious thing is to dissolve the business before you incur further losses. In this case you put the property up for sale and move in with your parents. Sorted.

Or, you could rent it out and then move in with your parents.  That way you can still pay your mortgage and get some income as well.  But get permission from the Bank first.  You most likely agreed to do this in your contract.

I hear what you’re saying: your parents’ house is cramped, you’re comfortable, you love your house and besides, the Bank is rich and they can wait on the money. They are making loads of interest on you, after all, so why would they be stressed?

Don’t forget, this is a business transaction. The Bank was sitting there, minding its own business, when you walked in and pitched them on a wonderful opportunity and now it’s looking sour. Your partner is going to do what any prudent businessperson will do; try to get out before its losses are too great and the shareholders sue for incompetence.

-Overcoming-Challenges-02-e1454609737382-560x295Okay, now you are crying about leaving your travertine tiled floors that you installed yourself and feel the Bank should understand. Why? The Bank never agreed to be your friend. The longer you linger in the house the interest is increasing and eroding the worth of your house (the equity) and the Bank’s ability to recoup the sum you owe. It’s a serious matter, especially if you both stand to be saddled with a balance on a loan that the both of you will spend years into the future trying to pay or collect, annoying if you really can’t pay.

Still, you’re saying you’d rather die than give up your custom kitchen. They’ll have to drag you screaming from your double ovens. Sadly, this means your partner will have to enforce the mortgage contract.

The next thing that will happen is that your matter is assigned to a lawyer ($$$). The lawyer will send you what is called a “Statutory Notice” (Notice). Because of the Property Act CAP 236 of the Laws of Barbados, several provisions are implied into your mortgage unless you agreed in your mortgage contract to specifically discard them. One provision is that a formal notice must be sent to you, demanding that you pay all the money due to the Bank under the mortgage, or the Bank will sell your land/house/condo. The law says the Bank can only proceed one month after you receive the Notice, which you probably agreed can be deemed served by registered post to your last known address. So, no, you can’t just shut all the windows and hide.

If your land is without a house on it, the bank can conceivably hold an auction the day after the expiry of the wait time. They won’t do that, however, as under the same laws they have a duty to act in good faith and find the best market for your property at that time. To treat it as though it were selling its own house. So they have to drum up interest by advertising, seek professional valuations to make sure that they know the value of the land. However, once they’ve done their best they can sell it to whomever makes an offer they will take. They are not required to wait for a better market or offer.

However, if there is a house on the land, the above still applies, but the assumption is that persons are occupying the house. So an application required by law (Property Act) is made to the court to gain possession. This application came out of equity (principles of fairness the court adheres to that are not strictly law but are almost as good as) because you both have already agreed that the sale would happen if you can’t pay.

Home for sale
House for sale

Basically, so that Mortgagors do not “lose” their homes willy-nilly, they are given an opportunity to make their case to the court if they believe that they can redeem the mortgage (pay back everything to the Bank, now including its legal expenses) or remedy some other default in a reasonable time rather than have to move out. What should happen is that the Court examines if this is just wishful thinking or not. If not, they are given a reasonable time under the circumstances to pay or deliver up possession, either by adjourning the matter to a later date or by a possession order which is suspended a few months to give you time to pay. If there is no reasonable prospect of redemption then the order for possession should be granted. The order now gives the Mortgagee access to the court’s organs for the enforcement of its order i.e. the Bank can now have the court’s marshals come and remove you, even screaming, and now you still have to go live with your parents. (Actually the marshals do work with you. They’ll explain they have to execute the Writ of Possession and say when they’ll be back to put you out, by which time you should be ready to just hand over the keys, or else…)

So, wouldn’t it be easier to avoid all that?

What you should do when you take out a mortgage is have a plan for when the business deal doesn’t pan out, like you would for a hurricane or a fire. There is no shame in it.

I guess, what I am really saying is, depending on how you handle the situation… you could be Donald Trump!

Good luck.

Yours truly,
Karis Bynoe

All You Really Need to Know About Your Mortgage Deed

Hi All,

man-signing-documentA lot of people love the idea of having a mortgage.  Basically you pay the Bank – from whom you have borrowed the money – until you can say that you own a “piece of the rock” (property).

A lot of people barely read the contract that they sign.  I know someone that complained about her lawyer making her read the document, lamenting that she was paying this person all this money, holding her up when all she wanted to do was move in and now they want her to read this long set of writing.

So, I thought I would point out what you are signing when you sign a mortgage contract if your only motivation is to get that niggly detail out of the way so you can get your hands on the cute four bedroom with double vanity sinks in the master bathroom, walk in closet, chef’s kitchen and devastating views.

“This Deed of Charge by Way of Legal Mortgage”

A mortgage is a fancy name for a loan given by a lending institution, usually a Bank or Credit Union, in exchange for a security i.e. something valuable it can sell to get back its money if you can’t pay.  It can be land, shares or a chattel house – once you own it and they are willing to use it as security.

In Barbados, for mortgages over land, rather than transfer the ownership of the property to the lender until you have paid in full, you register a Charge by way of Deed i.e. a signed and sealed formal document which is recorded against your land at the Land Registry.  The recording – which makes it the Charge – will constitute notice to everyone that the Bank must give permission for you to sell, one, and two, even though your name is on the title deed and you own the property, since you owe the Bank, the money from the sale must satisfy your loan first before it goes anywhere else.   If you are lucky, the sale pays off your debt and expenses and leaves a balance for you.   If you are not lucky and it does not, you owe the balance of the loan and it will be placed in the hands of a debt collector.  Make no mistake, the need for security is not a gamble for the Bank.  It is a type of insurance so that the Bank can recoup most if not all of its money should you not pay.

This Charge also gives the Bank the right to sell the property in order to recoup its money, a right conferred on it by the Property Act, CAP 236 of the Laws of Barbados.  In this case it will sell as Mortgagee (lender with security) and it does not need the permission or intervention of the Mortgagor (you).  But usually this only happens if you are in default of your obligations.  Usually.

“The Mortgagor promises to pay ‘on demand’”

This means what it says.

Your mortgage may or will contain other clauses which state that if you do not: pay the instalments on time each time, keep the premises insured, keep you insured, inform the Bank you are leasing the premises or making substantial changes to it, pay your other debts to the Bank or go bankrupt; then you are in default of the terms of the mortgage and the Bank has the right to give you notice to pay all sums due to it or it will sell your property to recoup the same.  This list is not exhaustive.  These are usually contained in a “term” mortgage i.e. you breach a term and you trigger a consequence like all the sums owed come due or some other action to your detriment.  Of course, the Bank may have the discretion to let the default slide if you rectify it.

But, if the words “pay on demand” are in your mortgage, without “if you do such and such” type of language, and they usually are, it means you have a “demand” mortgage and the Bank can simply send you a demand without you having defaulted.  Let me be clear; there does not have to be a default or a reason.  All those other clauses may be in there to allow you to understand what is required or provide impetus, but it does not matter.  Once it says “on demand” without more and you sign it, you are at the mercy of the Bank.

The good news is that the Bank is not remotely interested in voluntarily giving up the tidy bit of interest you’ll be paying to them in order to go into the real estate market.  No thanks.

“…Together with interest to date of payment at such rates and upon such terms as may from time to time be agreed commission fees and other charges and all legal and other costs charges and expenses incurred by the Mortgagee in relation to the Mortgagors or the property hereby mortgaged on a full indemnity basis.”

The above, in various forms is usually in your mortgage.  It means you pay whatever interest rate, if your mortgage has a variable rate that the Bank may set from time to time.  It also means that the Bank is NOT to be out of pocket because of you (meaning of “full indemnity basis”).  So you pay its legal fees as well as your own, any commission any agent may charge them as necessary, any charges or rates that come up because of the property like taxes or stamp duty, any expenses incurred because of you or your property.  If you default and they have to pay a lawyer to get you to pay or to follow certain formalities in order to sell your property, you will have to pay for this.  Granted, these charges in law must be “reasonable”.  You should note, however, an attorney-at-law can agree remuneration at whatever rate with her client, as long as it is not below the minimum set by law.  So watch out.

“The Mortgagors by way of security hereby irrevocably appoint the Mortgagee and the person deriving title under it and separately any receiver appointed hereunder severally to be their attorney”

A Power of Attorney is granted by you when you sign the mortgage to: the Bank, whomever the Bank assigns the mortgage to and, the receiver the Bank may appoint. This Power of Attorney cannot be revoked.  Those of you who don’t watch soap operas should note that it means the Bank can act for you to do whatever is necessary to protect or realise its security.  That same clause, further down, will usually say that it can ask you to sign whatever is necessary for this purpose.  If you don’t sign, you are in breach of the mortgage contract.

“Any notice or demand for payment by the Mortgagee hereunder shall without prejudice to any other effective mode of making the same be deemed to have been properly served on the Mortgagors if served on the Mortgagors or their personal representatives personally or delivered or sent by registered letter post telex facsimile or cable to the Mortgagors or their personal representatives at their usual or last known place of abode or business.”

You may be tempted to say that you have not received whatever letter or notice and therefore you cannot be held responsible for the consequences.  Don’t be silly.  When you signed the Deed, you agreed that if it is sent to your address or last known address or to your representative, by any of the above means, you are served.  Don’t change the rules of the game now you have your hands on the Bank’s money and it becomes inconvenient for you to repay it.  What you should do is notify the Bank if you change address, get divorced, move to Miami, or have issues getting mail and provide a better address.  I have seen people end up having to work and repay a balance owed, after the sale of the property, which is higher than the amount borrowed.  Why?  It could be many factors but too many times it’s because they avoided notifications, paying the debt or dealing with the inevitable sale of the property until the interest and charges were ridiculous.  This is a heavy obligation you are undertaking.  Act the part.

It’ll help you to appreciate those spectacular views and the walk-in closet.

Yours truly,

Karis Bynoe

Child Maintenance During And After Divorce Proceedings

child-support imageThe duty of parents to provide for the maintenance of their children, is a principle of natural law; an obligation laid on them not only by nature herself, but by their own proper act, in bringing them into the world: for they would be in the highest manner injurious to their issue, if they only gave their children life, that they might afterwards see them perish… – Blackstone (Commentaries, book 1, chapter XVI)

In Barbados, the Family Law Act Cap. 214 of the Laws of Barbados (‘the Act’) provides for the right to maintenance of a party to a marriage or union other than marriage as well as for the right to maintenance of children of the marriage or of the union. According to the Act, maintenance means “the provision of money, property and services, and includes (a) in respect of a child, provision for the child’s education and training to the extent of the child’s ability and talents. It should be noted that either party to the marriage may apply for maintenance for the child or children”.

According to Section 39 of the Act ““union other than marriage” or “union” means the relationship that is established when a man and a woman who, not being married to each other, have cohabited continuously for a period of 5 years or more and have so cohabited within the year immediately preceding the institution of the proceedings”. A child of the marriage, according to Section 3 (1) of the Act, includes a child adopted after the marriage of the husband and wife and a child of both the husband and wife born before their marriage.

Section 51 of the Act states that the parties to a marriage, or union other than a marriage, are liable, according to their respective financial resources, to maintain the children of the marriage or of the union who are unmarried and have not attained the age of 18 years. It is useful to note that the court may also make an order for maintenance with respect to a child who has attained the age of 18 years if the provision of maintenance is necessary to enable the child to complete his education or if the child is mentally or physically handicapped.

Section 54 (3) (b) of the Act provides that the order should specify the period for which it is in force or until a particular day.  Moreover, section 54 (1) states that in determining whether to make an order for maintenance of a child or in determining the period for which the order should remain in force or the amount of any payment to be made under the order, the court should consider the following:

“(i) the income, earning capacity, property and other financial resources of the child,

(ii) the financial needs of the child; and

iii) the manner in which the child is being, and in which the parties to the marriage or union expected the child to be, educated or trained.”

The court should also take into account the following and other factors which are listed under section 53 (2): “the financial needs and obligations of each of the parties; the responsibilities of either party to support any other person; the eligibility of either party for a pension, allowance, or benefit under any Act or rule, or under any superannuation fund or scheme, or the rate of any such pension, allowance, or benefit being paid to either party; the duration of the marriage or union other than a marriage, and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration”.

It should be noted that the decree nisi of dissolution of marriage will not become absolute until the Court is satisfied that proper arrangements have been made for the welfare of the children who are under eighteen years of age.

                                                                                                                         – Kara-Je Kellman