Most enforcement in Papua New Guinea proceeds by sale under section 68. Foreclosure is the other route, and it works quite differently.
First: what is being extinguished
A mortgage under section 63 charges the land and does not operate as a transfer. The borrower remains the registered proprietor. What the borrower has, alongside the title, is the equity of redemption — the right to get the land back free of the mortgage by paying what is owed.
That right is what foreclosure destroys.
Section 74(3) — the power
A creditor is entitled by action or other proceedings in the Court to foreclose the right of the debtor to redeem the mortgaged or charged land.
Note the words “by action or other proceedings in the Court”. Unlike the power of sale, foreclosure cannot be exercised by notice. The lender must go to court, and the borrower gets a hearing.
Foreclosure compared with sale
| Sale (s 68) | Foreclosure (s 74(3)) | |
|---|---|---|
| How exercised | By notice, then sale — no court needed | Only by proceedings in the Court |
| Trigger | One month’s default, notice, a further month | Default; the Court controls the process |
| Outcome | Land sold to a third party; proceeds applied under s 68(6) | Lender keeps the land; borrower’s right to redeem is gone |
| Surplus to the borrower? | Yes — the borrower is last in the queue but entitled to any surplus | No surplus — the lender takes the property |
| Borrower’s protection | Short statutory timetable; damages if improper | A hearing, and the Court’s control of the process |
A lender generally wants money, not land — and sale produces it without litigation. Foreclosure is more likely where the security is worth less than the debt, where a sale is impracticable, or where the lender actually wants the property.
For a borrower with equity in the land, foreclosure is the worse outcome: on a sale you are entitled to any surplus after the expenses, prior mortgages, the creditor and subsequent mortgages are paid. On foreclosure there is no surplus.
The remedies stack
Section 74(2) makes clear that an action of ejectment may be brought before or after exercising any other remedy in section 74 or the power of sale in section 68. The five remedies — notice and sale, possession, distraint, ejectment and foreclosure — are cumulative rather than alternative.
So a lender may take possession and receive the rents, distrain on a tenant after 21 days, sue for possession, and then either sell or seek foreclosure.
Possession usually comes first
Under section 74(1)(a) a creditor may, on default, enter into possession by receiving the rents and profits. That does not need the two-month sale timetable.
A creditor of a leasehold estate who enters into possession of the land or its rents becomes liable to the lessor for the rent and for performance of the covenants in the lease, to the same extent as the lessee.
Because nearly all registered land here is a State lease, a lender in possession takes on the obligations to the State — rent, and the lease conditions. Lenders weigh that carefully before entering into possession.
Foreclosure of a State lease
Whatever the lender does, the Land Act 1996 keeps operating in the background:
- the lease can be forfeited for six months’ unpaid rent or breach of conditions — which would destroy the security entirely;
- but section 122(4) requires a forfeiture or show-cause notice to be served on every person known to have or claim an interest, which includes a registered mortgagee — giving the lender the chance to intervene; and
- any transfer arising from enforcement remains a controlled dealing needing Ministerial approval, and is unregistrable under section 35(4) unless rent is paid and conditions performed.
What a borrower can do
- Appear. Foreclosure requires proceedings — do not let them go undefended.
- Redeem if you can. The right to redeem survives until it is foreclosed. Refinancing or a sale that clears the debt ends the matter.
- Ask the Court for time or for a sale instead. Where there is equity in the land, a sale protects your surplus and foreclosure destroys it.
- Account for what has been received. If the lender has been in possession taking rents, or has distrained under section 75, those sums reduce the debt.
- Check the mortgage for a section 73 variation of the notice periods.
- Keep the lease alive — a forfeiture under the Land Act would leave nothing for either side.
- Get advice quickly — the Public Solicitor, or a firm from the law firms directory.
After foreclosure
The lender’s interest becomes registered as proprietor, and the borrower’s right to redeem is gone. From that point the ordinary consequences of indefeasibility follow: a subsequent purchaser from the lender takes free of prior defects, subject only to the section 33 exceptions.
If the mortgage was discharged rather than enforced, remember to have the discharge registered under section 77 — paying the loan does not clear the folio.
Sources
- Land Registration Act (Chapter 191) — ss 33, 63, 67–77; Part VII
- Land Act 1996 — ss 83, 122, 127–129
- Insolvency Act (Chapter 253)
- Paga No 36 Ltd v Eleadona [2018] PGSC 17; SC1671
Before relying on anything here, read the current text of the Land Act 1996 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.