Buying a house being sold under power of sale

Buying a home can be difficult, but there are even more headaches if you're buying one that's being sold under power of sale.

Section 106 of the Registration of Titles Act (the 'act') as well as common law stipulates how to properly exercise the power of sale in respect of registered land.

The mortgage deed is the document that will outline how the mortgagee (the bank) should exercise the power. If the mortgagor (owner) is in default of their monthly payments, then the bank will usually give notice in writing to the owner requiring that the amounts owing be paid in full by a specified period.

The act provides that the notice may be served by giving it to the owner personally, leaving it at some conspicuous place on the mortgaged property, or sending it by registered post at the owner's address on the title. After the owner is served with the notice, he should settle the arrears to avoid the bank exercising its power of sale. If, however, the owner continues to be in default for one additional month, or any other period stipulated in the mortgage agreement, the bank may proceed to sell the mortgaged property by public auction.

By law, the bank is to take all reasonable steps to obtain the true market value of the mortgage property. The common practice by most financial institutions is to engage an auctioneer, who will conduct a valuation report in order to obtain a true value of the property. The true value is obtained by doing a full valuation report of the property. However, it is quite common that the owner will refuse to give the bank or the valuator access to the property. Under these circumstances, the bank will determine the market value on an external valuation report.

The property will then be advertised and an auction will be scheduled. At the auction, if a bid is accepted, then the bank will instruct its attorneys-at-law to prepare an agreement for sale with the buyer. Once the agreement for sale is executed, then the owner is no longer entitled to exercise his right to remedy his loan (equity of redemption) and cannot stop the power of sale from being exercised. That is where the headache starts for the buyer.

If the buyer intends to proceed by way of mortgage, then their financial institution, as part of their mortgage requirement, will require a full valuation report detailing the internal and external conditions of the property as well as a survey ID report. The problem with this requirement, however, is that these reports are contingent on the owner giving the buyer access to the property which, as stated prior, is unlikely owing to the simple fact that any owner who is losing his property will not be cooperative enough to grant access. Under these circumstances, the buyer will be at a crossroads and will have very few options, if any at all, in securing a loan. It is also important to note that some institutions will only grant a partial mortgage where the property is being sold under a power of sale.

Say for instance, the buyer is a cash buyer and will not require the abovementioned documents. There still remains the headache of not being guaranteed possession, despite paying the full purchase price. Therefore, in order to get access to the property, the buyer will have to serve a notice to quit on the owner and thereafter commence legal proceedings against him. During this period, the buyer will be denied access to the property, despite having paid the full purchase price as possession, is at the discretion of the owner until he vacates, or until the buyer secures a court order forcing the owner to give up possession.

Odane Marston is an attorney-at-law who specialises in conveyancing, administration, probate, recovery of possession, criminal litigation and divorce. Marston may be contacted via email Odanemarston@gmail.com or telephone 876-999-5391. This article is for general information purposes only and does not constitute legal advice.

Odane Marston is an attorney-at-law who specialises in conveyancing, administration, probate, recovery of possession, criminal litigation and divorce. Marston may be contacted via email Odanemarston@gmail.com or telephone 876-999-5391. This article is for general information purposes only and does not constitute legal advice.