MORTGAGEE’S SALES

Dominion, Volume 25, Issue 171, 15 April 1932, Page 6

MORTGAGEE’S SALES

Fixing of Reserve Prices

NO POWER FOR REGISTRARS

Supreme Court registrars hare neither the duty nor the power to fix reserve prices at mortgagees’ sales, according to a reserved judgment delivered by Mr. Justice Blair in the Court of Appeal on Tuesday. “At the present time of financial depression,’’ his Honour said,. “mortgagees’ sales are unfortunately common, aud it is not uncommon for mortgagees to be unwilling to buy in mortgaged properties. The common practice at mortgagees’ sales before the present depression was for the mortgagee to bid his estimated value, and if there was no better bid, then the property was ‘knocked down’ to him at his estimate. If a sale Is made through the registrar without reserve and a stranger makes a small bid well under the figure in the mortgagee’s estimate, the mortgagee must, for his own protection, outbid him. If the mortgagee’s estimate of property were, say, £lO,OOO, and the sale without reserve, and a stranger bid, say, £lOO, and the mortgagee bid only £2OO, he would become the purchaser at £lO,OOO, because that is his estimate. Thus, the effect of offering a property without reserve is that the mortgagee will probably be compelled to buy in at his estimated value, even if he did not wish to acquire the property. “If a reserve is fixed, even if such reserve is the mortgagee’s estimate of the value, the mortgagee has this advantage, that he can bid against a stranger up to the amount of his estimate without becoming the purchaser of the property. The result, therefore, of fixing as the reserve price the amount of the mortgagee’s estimate of value, is to leave the mortgagee free to bid up to the amount of the reserve without the risk of becoming the purchaser, and the probable result of adopting this course would be to increase considerably the number of abortive sales. The only element of unfairness to a mortgagor in permitting the adoption of a reserve price at the same or more than the mortgagee’s estimate that I can detect is that a mortgagee is not compelled to bid up to his estimate, which would leave him free to inflate his estimate and thus possibl.v interfere with the mortgagor’s right to redeem.

“The registrar, without independent expert valuers’ assistance, might well object to lend his approval to a mortgagee’s estimate, and I feel grave difficulty in coming to the conclusion that the Legislature intended registrars to go to the length even of merely approving as the reserve price the mortgagee’s estimate, when there is entirely wanting any machinery for enabling registrars to check such an estimate.

“This objection had equal if not greater bearing on the proposition that the registrar should fix either a higher or lower reserve price than the mortgagee's estimate. The objection to a registrar fixing a higher reserve price had already been noted in the case of Hamilton against the Bank of New Zealand. The objection that he saw in a registrar fixing a lower reserve was that it might well result in injustice to the mortgagor, because he would have grave cause of complaint if he learnt that the property had been sold to a stranger at the registrar's sale at a price less than the figure at which ho, was permitted by Statute to redeem.” His Honour said he considered Hamilton’s case, followed as It xvas by special legislation, was a binding authority on the Court of Appeal that’ registrars had neither the duty nor the power to fix reserve prices at mortgagees’ sales. His Honour added: “If it is deemed desirable that registrars should be given power to fix in conditions of sale as the reserve price the same figure as is fixed by the mortgagee (and I am not for one moment suggesting it is desirable), that is a matter, in my opinion, for the Legislature, and such a power, if conferred, should be accompanied by appropriate powers to enlist expert assistance.”