MORTGAGE RELIEF

New Zealand Herald, Volume LXXIV, Issue 22822, 1 September 1937, Page 10

MORTGAGE RELIEF

-ADJUSTABLE DEBTS CASE OF THE FARMER VALUATION OF PROPERTIES GUARANTORS' LIABILITIES BY BARRISTER The following is (ho third of a penes of four articles writion specially for the llriuio on the effect of ttie decisions so far reported ,of the Court of Review under the Alortsairors and Lessees f!etabilitation Act, J! When on applicant's mortgage has been redhcod. what happens to the balance? 11l our last article we considered the case of a home applicant whose mortgage, originally £'SOO, had" been red.uced to £<oo by the coinnus- * sion. In this case what happens to the £100? The answer is that it becomes an "adjustable debt." and the commission will next proceed to consider what should be clone about it. In the case of homo applicants, as distinct from farmers, not all their unsecured debts are "adjustable debts": their "adjustable debts" are (1) the balance (if any) bv which their mortgages are reduced, and (2) any unsecured debts which arise out of the acquisition or improvement of the home. In this class will, for instance, be included the unpaid bill which the applicant still owes for having his' paths" concreted, but not his grocer s bill. . . • The commission, in considering whether an adjustable debt shall be written off or paid, and, if so, how paid, is guided by many considerations. If the applicant has no assets, •then tli~ adjustable debts will generally be written of, but tho whole circumstances of debtor and creditor, and the circumstances in which the debt was contracted and the conduct of the parties, may all be taken into consideration by the commission. Generally, the commission will not inflict hardship upon a mortgagor by stripping him of all his available assets to pav his mortgagee, and it is understood* in fact, that most mortgagors have been substantially satisfied with the treatment' which they have received from the commissions on this . noint. Valuation oi Farms What special considerations then armly to farmer applicants on their appearance before the commission. Thp jmsTver is to b© found m method of valuing farm which differs entirely from the method employed in valuing town propeities. While, as we have seen, town properties ore valued on a "willing vendoi, willin* purchaser'' basis, a special method of valuation of farm properties * inspected by a competent valuer, who shouid be a man with a thorough knowledge ot -nraotical farming as well as a know j E of local values. Let it be assumed j for" the purposes of this article that our application is concerned with a small dairvtrni of 50 acres. The valuer will first after inspecting tho farm carefully, decide what is the carping capacity of the land properly and efficiently faulted. Living Wage for Farmer The income which ought to be . derivable is then calculated on the basis of so manv, pounds ot butter-fat per cow. Each district has a known ' average of production ' which should be reached with a herd of average efh- ' ciencv. Adding one-ninth more to the " livpothatical dairy income for the potential pig income, an income is calculated which this farm ought to be able to produce. From this calculated gross income is then deducted "the expends neces- - sarv to earn' it. Deductions are made for"purchases of stock (over and above receipts for culls), manures and seeds, carrying and freight, fire and accident insurance, rates, wages (if any, regular or casual), depreciation on buildings and implements, and finally ior the living expenses or the fanner and his W1, Ihis last, item is generally fixed at £156, or £3 -a week, an amount which during the slpmp many farmers would have been delighted to have received. After- all these deductions have been made, the balance is treated as net income, and is capitalised on a o per cent basis, .the resultant figure being the determined value of the property. M?dy Advantages This method of calculation has many ' ' advantages. First, it puts farm values definitely, on a "production value basis, and, if properly used, should prevent a property from being permanently loaded with mortgages whose interest it can never produce. It pre'vents speculative values from entering into the commission's consideration and makes for greater uniformity in the methods of valuers, for all valuers can be cross-examined on tho same lines as to their method of valuation. On the other hand, when income is first determined, and then multiplied by 20 to determine capital value, it is obvious that a mistake of £-3 in the first figure will result in a mistake of £IOO in the result; hence it is essential to use the greatest care in the assessment of income and expenses, and even then the commissions sometimes find that their figures yield startling results. It, is an almost universal custom, however, for commissions to inspect the properties, and it is believed that when the hypothetical value is too far from reality the commissions allow sound common sense to influence, them in amending the figures somewhere. Adjusting the Farmer's Debts Unlike the townsman, the farmei can bring all his debts, not only special ones to the commission for adjustment. If he is groaning under a heavy load of unsecured debts, he will find that not only, is his mortgage written • down to the level at which the property will carry it, but that his unsecured debts, as at October 1, IP.'iO, will bo written off, or his creditors' remedies postponed or restricted, as well. , ' Of course, since the Act was passed into law on October 1 of last year, it does .not affect debts incurred since that date, and farmers who have secured credit since then, and rely on the commission to aid them with their new debts, are destined to be severely disappointed. ' Position of Guarantors Another class of person coming before the commissions for relief is the "guarantor" —persons who are not now the owners of, mortgaged properties, but who, cither 'as former owners or as guarantors, are still personally liable to the mortgagee. While the commissions take all the circumstances into ' consideration/ in these cases, and it is ? therefore difficult to lay down any general rule, it has been found in practice that, with two exceptions, the tommissions are generally willing to grant relief to all such guarantors. The exceptional cases are, first, guarantors whose financial position is strong that they do not need relief, and. second, guarantors whoso personal guarantee was the real reason why the loan was originally granted. Obviously this last class - of person is in a different position from the person whose - guarantee is merely the casual result of a former ownership. <(To be concluded,);