Property Mortgagee Sale

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Powers under the Mortgage

Section 108 of the Transfer of Land Act 1893 (“TLA”) is the primary sources of the power of sale in relation to a registered mortgage; however, they should be read in conjunction with the mortgage as the terms of the mortgage generally reduce the time of default to 7 days in lieu of the statutory 30 days.


Section 108 of the TLA permits a mortgagee to sell the land by public auction or by private contract.

The authorities have held that the mortgagee has a duty to mitigate the loss of the mortgagor and to act in good faith. The mortgagee should therefore engage competent and suitably experienced estate agents; not to delay the sale and to sell the property in a timely manner, as well as carry out a suitable advertising campaign.

A registered mortgagee’s power to sell arises by virtue of section 108 of the TLA, where the mortgagor has defaulted in payment of the principal sum and/or interest or has defaulted in the performance or observance of any covenant, express or implied, in a mortgage that has been registered under the


A condition precedent to a valid exercise by a mortgagee of the power to sell is the service of a notice on the mortgagor. This notice must clearly specify the default complained of and provide the mortgagor with an opportunity to remedy the default within the specified time of one month as required by Section 108 of the TLA, or such other period as may be provided for in the mortgage.


If the mortgaged property is tenanted, possession may be obtained by arranging for the agent, or the tenant to pay the rent to the mortgagee. Generally, the property will be sold with vacant possession. If the mortgagor occupies it, it is likely to be necessary for ejectment and to obtain possession before the sale. Section 111 gives the mortgagee the power to issue proceedings to enter into possession.

Contract of Sale

1. The mortgagee is shown as the vendor, not the registered proprietor.

2. Chattels should not be included in the sale, as the mortgage does not include chattels. Consequently, the mortgagee has no right to sell any chattels. A separate clause should be in the contract, clearly stating that the contract does not include the sale of any chattels.

Vendor Statement

1. The mortgagee should be described as the vendor. There should be no reference to the registered proprietor.

2. For the proof of the right to sell, a copy of the mortgage and the notice to pay should be annexed.

If an auction is unsuccessful, the mortgagee can consider a private sale.

However, the mortgagee may notify all subsequent encumbrances on title of the mortgagee’s intention to sell by private treaty and to provide details of the proposed sale. This would permit any subsequent mortgagee to exercise its rights under Section 128A of the TLA to pay out in full the preceding mortgage and take a transfer of the prior mortgagee’s interest.

Section 110 of the TLA provides for the registration of the transfer. The interest of the purchaser is vested free of any liability from the mortgage and free of liability of any other subsequent mortgage, charge or encumbrance registered or notified in the register book subsequent to our mortgage excepting a lease, carbon right, carbon covenant, plantation interest or grant of easement to which the mortgagee have consented in writing.

Proceeds of sale

After settlement, distribution of the sale proceeds is set out in Section 109 of the TLA. Proceeds are applied in the following order:

1. In payment of all expenses incurred in the sale;

2. In payment of the money due on the first mortgage;

3. Payment of money owing under subsequent mortgages and charges in the order of their priorities;

4. The surplus (if any) to the mortgagor.


If the proceeds of sale are insufficient to cover the amount due under the mortgage and expenses, the mortgagor remains personally liable to the mortgagee for any shortfall.

Subsequent Mortgagees and Caveators

A subsequent mortgagee does have the right under Section 128A of taking a transfer of the first mortgagee’s rights by payment of all monies outstanding.

Caveators are not required to provide a withdrawal of caveat and are in a similar situation to the subsequent mortgagees unless the caveat claims that the unregistered mortgage, charge, or other document is binding upon the mortgagee.

However, the vendor mortgagee will often not have been aware of such interest protected by the caveat and will not have consented to the caveat. In such cases, the caveat would not bind the vendor mortgagee.

Caveats not claiming to secure payment of money and lodged subsequent to the mortgage, such as a caveat by a purchaser from the registered proprietor or purported trust caveat does not automatically lapse. In such a situation, the vendor cannot make title and unless the caveat is removed or withdrawn, the purchaser would not be required to settle.

Tenant in possession at date of registration of mortgage

As the mortgage document usually provides that a mortgagee is entitled to the receipt of rents and profits once default occurs under the mortgage, and Section 111 of the TLA empowers the mortgagee to claim rents and profits upon default, the tenant must comply with any request for the payment of rent to the mortgagee.

Real Estate Agents

As the sale is by a mortgagee and not the registered proprietor as in most instances, many prospective purchasers may be unsure of what they will receive and this doubt may affect their decision to purchase.

The agent must understand that it is the mortgagee’s responsibility to obtain the best possible price for the property and that the property is to be properly advertised.