RECO3037 Chap.8 Mortgages, Redemption and Mortgagee Remedies
Mortgages, Redemption and Mortgagee Remedies
A security, not a sale
A mortgage gives land as security for a debt, subject to the borrower's right to redeem: once the debt is paid, the land must be released. The lender gains a real security, which survives the borrower's bankruptcy and ranks ahead of ordinary creditors.
Hong Kong's rules come from the Conveyancing and Property Ordinance, and the lectures stress that they differ from English law, so English authority should not be relied on here.
From assignment to legal charge
Before 1 November 1984 a mortgage was made by assigning the land to the lender, who re-assigned it on redemption, an artificial arrangement that made the lender answerable for the owner's liabilities.
Section 44(1) replaced it: a legal mortgage can now be made only by a deed that states it is a legal charge, and existing mortgages were converted by section 44(3). Second and later legal charges became possible, and an equitable mortgage by deed over a right to a Government lease becomes a legal charge under section 46 when the right matures into a lease.
Equitable mortgages still arise by deposit of title deeds, by an agreement to mortgage, by mortgaging an equitable interest, or by an equitable charge.
Redemption, remedies and the order of proceeds
The borrower's protection is the equitable right to redeem, which no clause may clog: an option for the lender to buy the property is void, and collateral advantages must end on redemption.
The lender's remedies divide into those that recover capital, sale under section 51, foreclosure and suing on the covenant, and those that recover interest, possession and the appointment of a receiver under section 50. When the lender sells, section 54 sets the order in which the proceeds are used, and sections 52 and 55 protect the buyer.
The chapter ends with further and second mortgages, tacking under section 45, and the usual clauses of a mortgage deed.
What this chapter covers
- 01
The meaning of a mortgage and the right to redeem
- 02
Mortgage by assignment before 1 November 1984
- 03
The legal charge under section 44
- 04
Four kinds of equitable mortgage
- 05
No clog or fetter on the equity of redemption
- 06
Sale, foreclosure and suing on the covenant
- 07
Possession, receivers and section 50
- 08
The section 54 order for applying proceeds
- 09
Further advances, tacking and second charges
Worked example · free
Who is paid first when a second chargee sells a flat
- 2Pay the outgoings due on the land first.
- 3Discharge the prior incumbrance, because the sale was not made subject to it.
- 2Pay the costs and expenses of the sale.
- 3Pay Bank B's debt and identify who receives the residue.
Key terms
- Legal Charge
- The only form of legal mortgage of land in Hong Kong since section 44, created by a deed that states it is a legal charge.
- Equity of Redemption
- The sum of the borrower's rights in equity over mortgaged land, an interest that can itself be sold or leased.
- Foreclosure
- A court order extinguishing the borrower's right to redeem, leaving the lender owner at law and in equity.
- Receiver
- A person appointed in writing by a mortgagee to collect rents and profits, who acts as the mortgagor's agent.
- Tacking
- Adding a further advance to an earlier mortgage so that it ranks ahead of an intervening lender, allowed only in the cases section 45 permits.
- Negative Pledge
- The mortgagor's covenant not to assign or further encumber the mortgaged property without the lender's consent.
Mortgages, Redemption and Mortgagee Remedies FAQ
What can a bank do if I stop paying my mortgage instalments?
A bank holding a legal charge by deed can sell the property under its statutory power in section 51, appoint a receiver under section 50 to collect any rent, take possession, sue you on your personal covenant to repay, or seek foreclosure. Sale and suing recover the capital; a receiver or possession recovers interest. You keep the right to redeem by paying what is due.
Can a mortgage contract stop me from getting my property back?
No. The right to redeem cannot be clogged or fettered. A term that the property will belong to the lender on some event is ineffective, an option for the lender to buy the property contained in the mortgage is void, and collateral advantages must end on redemption. A postponement of redemption is valid only if the mortgage as a whole is not oppressive.
Who gets the money when a mortgagee sells?
Section 54 sets the order: outgoings on the land such as rates, then any prior incumbrance unless the sale was made subject to it, then the costs of the sale and any receiver, then the selling mortgagee's own debt with interest and costs. Whatever remains goes to the person entitled to the land immediately before the sale, usually the borrower or a later chargee.
Exam move
Keep two lists side by side: the five remedies with whether each recovers capital or interest, and the four stages of section 54. Then practise one sale calculation with your own figures until the order of the stages is automatic.
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