In a preceding article, we looked at how the new land laws have altered the property market. The list could not be exhaustive and here is a further review.
With the new laws, parties with overriding interest on property – including tenants, persons with right of entry and spouses – must be served with and have a right to overturn any sale or security documentation they did not consent to.
Sections 97 and 98(1) impose a duty of care towards the borrower by the lender. Land must be sold at market value (if private treaty) and at reserve price (if public auction). This is beneficial to borrowers who get to keep any surplus funds obtained from such sale.
The burden of getting the best possible price moves to the lender, which may take long and propagate non-performing loans. A fiduciary duty of care is now imposed on the lenders.
Also, borrowers can now move their mortgages from one lender to another without having to pay stamp duty twice to the government (as per the Finance Act 2012) as was the case before.
For lenders, sections 79 and 81 recognise both formal and informal charges. A bank can now lend and be secured by just holding the title and a signed charge document, without having to go through the lengthy process of registration. Section 80 regularises documentation, while Section 82 empowers lenders to create revolving credit securities against the original charge, allowing them to lend on numerous occasions against same security document.
Going forward, lenders cannot require borrowers to pay more than a month’s interest in lieu of notice, meaning they will no longer earn penalty interest of more than a month if borrowers redeem mortgages early or transfer their loans to other institutions.
The new laws also make documentation bulkier and costly. The requirement that consent must be obtained from beneficiaries is cumbersome for financiers who have to obtain all consents to guard against documents being overturned to their detriment.
The process of recovery in the event of default, while it may benefit the defaulter, is disadvantageous to financiers as it is stringent and lengthy. The lender has to contend with having a non-performing loan in its books for a much longer period before they can recover.
Financiers must now provide notice of intention to sell, not only to the borrower but numerous others (Section 96)including tenants, spouses, co-owner, guarantor, community member, among others. Failure to serve notice could result in sale being overturned to their detriment. This will increase costs as it is incumbent on them to ensure all interested parties are served.
The new laws are being enforced retroactively and apply to charges existing before their enactment. Financiers must now ensure that all documents are compliant, and must obtain consents from overriding interests.
For spouses, while it may not be a disadvantage as such, one must seek consent from wife or husband – as the case may be – before selling or borrowing against matrimonial property. Some may find this law restrictive, especially if consent is likely to be unduly denied, as they must keep going back to the spouse every time.