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

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