The mortgage document is important but complex. Often these documents contain difficult to understand legal terms, phrases and concepts.
How can lenders protect their rights and interests? What does a good mortgage look like? Let’s define what key items should be included in all mortgage documents.
Why is the mortgage document crucial?
The mortgage document is crucial. It also forms the foundation in legal disputes between lenders and borrowers in default. Many lenders, however, find themselves exposed due to flawed documents. Frequently these do not grant the mortgagee the rights it requires.
The most common issue is the failure to include all the material terms that the mortgagee relies on at the enforcement stage. Another classic error is not adding a well drafted ‘interest rate’ clause, or relying on an ‘all monies’ mortgage.
Each mortgage implies a set of limited rights for the lender. These vary from State to State but generally include that, in an event of default, a mortgagee will:
- have a right to possession of the mortgaged property
- have a right to appoint a receiver of the income of the mortgaged property.
However, these implied obligations do not cover all potential issues of concern for a lender. In addition, the above need elaboration to ensure the mortgagee can enforce its rights. That is why it is so important for lenders to use a properly drafted mortgage document.
What items should be included in all mortgages?
A good mortgage document should include the following core content:
- the right to repayment of the Principal (not just in the Loan Agreement)
- the right to charge interest, the applicable rates, how interest accrues and when it is payable
- the Mortgagee’s right to possession of the security property
- the right to recover legal and other enforcement costs on the indemnity basis
- the right to appoint a Receiver to the security property
- a Charging Clause
- the right to exercise various powers on default
- a Power of Attorney Clause
Finally, if the mortgage you are using to secure your loans does not include all of these items, your funds may be exposed.
Our clients demand the immediate drafting and issuing of mortgage documents. We understand this. Our customised, all-in-one mortgage document, has been drafted to ensure quick turnaround times without compromising their rights. View our Mortgage Memorandum here.
This publication is for your general information and interest only. It is therefore not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek advice tailored to your specific circumstances.