In a mortgage transaction, property is used as security for loan. This means that someone (called the mortgagor) gives out his property to secure a loan with the intention to get it back when the loan is serviced(paid back to the lender) on or before the due date.
In Real Property Law, once a mortgage transaction is initiated, the mortgagee (lender) is bestowed with certain legal rights. Some of these rights are explained below:
- Right to Take Possession: where the mortgage is a legal mortgage, the mortgagee is empowered to take possession of the property. This means that he may take hold of the property, and handle the property as his for a number of reasons. This right does not only arise when the loan is not paid on the agreed date; it is one birthed immediately the mortgage contract is executed. In practice, mortgagees don’t take possession unless and until it is incumbent to save the property and their legal interest.
- Action to Recover Principal Sum and Interest: whether the mortgage is legal or equitable, the mortgagee can institute an action to recover his principal (loan) and the outstanding sum on the loan. This right only arises where the mortgagor defaults in payment on the due date. Mortgagees usually exercise this right when they do not want to exercise the right of sale or when not empowered by the law to sell.
- Appointment of Receiver: where the mortgagor does not service the loan on the due date, the mortgagee may appoint a receiver to take possession of the property, collect rent and use such rent to service the loan. When the loan is serviced and all interest is paid, the property is returned to mortgagor. Where the mortgage is equitable and the deed does not contain a clause for the appointment of receiver, the mortgagee must approach the court to make such appointment.
- Right of Sale: where a legal mortgage is by deed and there is no prohibition of the sale of the property, the mortgagee can sell the mortgage property to realize the principal sum and outstanding interest on it where the mortgagor defaults in payment. Before the right is exercised, it must have justification by operation of law. In this case, when the mortgagee sells the property in an amount that is higher than the money owed, he is to give the balance to the mortgagor.
- Action for Foreclosure: Interestingly, the court is always quick to stress that once a mortgage always a mortgage which means that the mortgagor should always have the right to redeem his property. Therefore, the various judicial procedures taken by the mortgagee to acquire the mortgage property for himself freed from the Mortgagor’s equity of redemption is what is meant by an action for foreclosure. To this end, once the court enters an order foreclosing the right of the Mortgagor to redeem his property, such an order is known as foreclosure nisi which would operate for six months within which the Mortgagor can still redeem his property. Upon the expiration of these six months, and if the Mortgagor was still unable to pay his debt to the Mortgagee, the foreclosure order is deemed absolute. By Implication, the Mortgagor would no longer be able to get his property back from the Mortgagee.
We hope that the points highlighted has helped your understanding of the rights of the lender in a mortgage transaction.
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