Understanding Your Obligations in relation to Mortgages – Mortgagor Perspective

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Table of Contents

• What are the mortgagor’s key obligations under a mortgage?
• What are the consequences of non-compliance?
• Conclusion

A mortgage is an agreement that sets out the conditional right of ownership of a property or asset by its owner (the mortgagor) to a lender (the mortgagee) as security for a loan. When the loan is repaid in full, the lender’s security interest is voided. The mortgagor will have various obligations under a mortgage.  Obviously the terms of each mortgage will differ but the most common obligations a mortgagor are set out below.

What are the mortgagor’s key obligations under a mortgage?

The most common obligations a mortgagor will have under a mortgage are as follows:

1. Payment of all amounts due under the loan agreement: The mortgagor will have to pay to the lender all amounts due under the loan agreement.  This will include the principal loan amount, any interest, any fees, any costs and expenses and any indemnity payments.
2. Payment of costs and expenses: The mortgagor may be expected to pay or reimburse the lender for any costs and expenses in relation to the mortgage (such as lawyer’s fees, registration fees and stamping costs). If this is expected, it will be set out clearly in the mortgage.
3. Covenants: The mortgage will contain various other covenants.  These are basically promises by the mortgagor to do/not to do certain things.  The most obvious covenants are:

• not creating other security over the secured property;
• giving the lender certificates of title in respect of the secured property;
• keeping the secured property in good repair;
• insuring the secured property; and
• not doing anything to decrease the value of the secured property.

Covenants are aimed at minimising the risk of the lender not receiving its money back from the mortgagor.

What are the consequences of non-compliance?

Failure to comply with an obligation is likely to be an event of default. Following an event of default the lender will usually have the following contractual rights:

• all monies becomes immediately due for repayment; and
• the lender may enforce its security to ensure it is repaid in full for all monies owing by the mortgagor. This means that, amongst other things, the lender can enter upon and take possession of the secured property ; the lender has the right to receive all income from the property as owner; the lender may sell the property and use the sales proceeds to repay all outstanding monies; the lender may create a security interest (including a lease) over the secured property; the lender may make repairs to the secured property; the lender may insure the secured property; and the lender may do anything else with respect to the secured property as it deems expedient.

In addition to the above, if the event of default also constitutes a breach of contract or a misrepresentation, the lender may also be able to make a claim against the mortgagor for any losses it incurs as a result of such breach or misrepresentation.

Finally, most mortgages will contain a provision whereby the mortgagor gives the lender power of attorney upon an event of default.  This means that, if the mortgagor is in default, the lender is able to act under this power of attorney in order to enforce its security.

Conclusion

A mortgagor will have certain obligations under a mortgage.  Above, we discussed the most common obligations imposed upon mortgagors but each mortgage is different and therefore it is essential to review and understand your mortgage fully before you sign it.  The consequences of a mortgagor not complying with its obligations can be great.

LegalVision has a team of great leasing lawyers who can assist you. Please call our office on 1300 544 755 and our Client Care team will happily provide you with an obligation-free consultation and a fixed-fee quote.