How Does a Mortgage of Registered Land Work?

Part VII of the Land Registration Act governs security over registered land in Papua New Guinea — almost always over a State lease.

Section 62 — creating a mortgage or charge

• Where an estate or interest is intended to be made security in favour of a mortgagee, the proprietor shall execute a mortgage in the approved form.
• Where it is intended to secure an annuity, rent charge or sum of money in favour of a chargee, the proprietor shall execute a charge in the approved form.

Part VII calls the lender the creditor and the borrower the debtor, covering both mortgages and charges.

Section 63 — charge, not transfer

This is a defining feature of the Torrens system. Under older forms of mortgage the lender took the legal title and gave it back on repayment. Here the borrower remains the registered proprietor, and the mortgage is recorded as an encumbrance on the folio — one of the interests you take subject to under section 33(1)(b).

Sections 64 and 65 — the implied covenants

Two covenants are implied against the mortgagor by force of the Act:

• (a) that he will pay the principal money and interest at the rate and times specified, without deduction; and
• (b) that he will repair and keep in repair all buildings and improvements on the land — and that the mortgagee may, at all convenient times until the mortgage is redeemed, enter on the land to view and inspect their state of repair, with or without surveyors.

Section 65 adds a drafting shortcut: a covenant expressed in a short form from Column 2 of Schedule 4 implies the full covenant in Column 3 as fully and effectively as if set out in full. When reading a mortgage, check Schedule 4 — a short phrase may carry a long obligation.

Section 67 — default and notice

The notice may be given (a) in person; (b) by leaving it on the land subject to the mortgage; or (c) by leaving it at the usual or last-known address in the country of the debtor or other person claiming to be entitled to the land.

Section 68 — the power of sale

So the total timeline is one month of default, then written notice, then one further month. That is the whole protection, and it is short.

The power is wide. The creditor:

• may execute any document to effect the sale;
• may sell altogether or in lots;
• may sell by public auction, by private contract, or partly by each;
• may sell subject to any conditions of sale he thinks fit; and
• may buy in and resell without being liable for loss occasioned by that purchase or resale.

Section 68(6) — the order of application

The borrower is last in the queue. That is why the sale price matters so much to a mortgagor, and why the conduct of the sale is often the real battleground.

Section 69 — the purchaser is protected

All sales, contracts, matters and things authorised by section 68 are as valid and effectual as if made, done or executed by the debtor, and the creditor’s written receipt is a sufficient discharge to a purchaser for the purchase money specified.

Section 69(2) goes on to protect the purchaser from having to inquire into the regularity of the exercise of the power. The practical consequence for a borrower is important: once the land is sold to a purchaser, getting it back is very difficult. A borrower disputing the sale usually ends up claiming damages against the lender rather than recovering the land.

If you are in default

1. Act in the first month. The whole statutory timetable is two months.
2. Check the notice — is it written, does it identify the default, and was it served in one of the three permitted ways?
3. Negotiate in writing, and get any arrangement recorded. An informal indulgence is not a variation.
4. Consider refinancing or selling yourself. A sale you control almost always achieves a better price than a mortgagee sale — and remember a transfer of a State lease needs Ministerial approval.
5. Watch the Land Act position too. Rent arrears and unmet improvement conditions expose you to forfeiture, which would destroy the lender’s security as well as your own interest. Note that under section 122(4) of the Land Act, a mortgagee must be served with a forfeiture or show-cause notice, so your lender may be able to help.
6. Consider a caveat if you have a claim that needs protecting while a dispute is resolved.

Section 66 — transferring a mortgage

A mortgage or charge may be transferred by instrument in the approved form, with the consideration specified (and, if not money, stated concisely). On registration, the transferor’s interest with all rights, powers and privileges passes to and vests in the transferee, who becomes subject to the same requirements and liabilities as if originally named as mortgagee.