How Does a Mortgagee Sale Work?

A mortgagee sale is the remedy most borrowers actually face. Sections 68 and 69 of the Land Registration Act set out how it works.

The timetable

Notice may be given in person, by leaving it on the land, or at the debtor’s usual or last known address in the country (s 67(2)). Service by leaving it on the land means a valid notice may never reach you personally.

Section 68(2) to (5) — how the sale may be conducted

For the purpose of effecting a sale the creditor may execute any document. The land may be sold:

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

That is a wide discretion over the manner of sale, and it is the practical reason mortgagee sales often achieve less than a controlled sale by the owner.

Section 68(6) — the order of application

The borrower is last. Priority among the registered securities follows the Register — under section 24, by the order of production for registration, with each memorial recording the day and hour.

Section 69 — the purchaser’s protection

Section 69(2) goes on to protect the purchaser from being required to inquire into the regularity of the exercise of the power.

Selling a State lease under the power

A mortgagee sale of a State lease is still subject to the Land Act 1996:

• the transfer is a controlled dealing where the remaining term exceeds five years — void without Ministerial approval; and
• section 35(4) of this Act bars the Registrar from registering it unless satisfied rent is paid to date and the improvement conditions performed, or special grounds are shown.

So arrears of rent to the State, or unmet improvement conditions, can stall a mortgagee sale as effectively as they stall any other. Lenders taking security over State leases should monitor Land Act compliance, not just loan repayments.

What a borrower can do, and when

1. Within the first month — deal with the arrears, or negotiate and get any arrangement in writing. An informal indulgence is not a variation.
2. On receiving the notice — check it is written, identifies the default, and was served in one of the three permitted ways. Diarise the further month.
3. Consider refinancing, or selling yourself. A controlled sale almost always achieves more, and you are last in the section 68(6) queue.
4. Check the Land Act position — and if conditions cannot be met, apply for relaxation under section 118(2) and remission or postponement of rent under section 83(5).
5. If you say the sale is improper, act before settlement — lodge a caveat and take advice immediately. After registration your remedy is damages.
6. Get advice — the Public Solicitor, or a firm from the law firms directory.

If you are a tenant of land being sold

Your position depends on section 49(3): a lease executed after the mortgage was registered does not bind the mortgagee unless it consented before the lease was registered. Without that consent, a purchaser on a mortgagee sale may take free of your lease.

A tenancy of three years or less, or a tenancy document with actual occupation, is protected against a registered proprietor under section 33(1)(f) and (g) — but the section 49(3) consent point is the one that decides most cases.