THE NEW MORTGAGE CONDITIONS

Stratford Evening Post, Volume IV, Issue 223, 1 September 1936, Page 5

THE NEW MORTGAGE CONDITIONS

SUGGESTIONS MADE FOR IMPROVEMENT OF BILL "SINISTER INFLUENCES" SEEN AT WORK IN ONE CLAUSE. ■■t a: In the third of The Post's interviews with Mh ~£....5, Rui'heffiif8 e concerning 'the new mortgage |[e^islat|on N JVli;,. says that it was mentioned in a previous interview that there were a number of interesting and novel provisions in the Mortgagors' and Lessees' Rehabilitation Bill which would require special consideration. These provisions do not appear in previous legislation and are not essential for the purpose of giving the relief contemplated by the present Bill. Dealing with them in the order in which they appear in the Bill they are as follows:

(a) Section 43 (Sub-section 7): The terms of any adjustable security may provide for the repayment of moneys secured thereby in the event of the sale or transfer before the date fixed for repayment of the property that is subject to the security. This section gives the Commission and the Court power, when reducing ? mortgage in pursuance of an application for relief, to provide as an additional term of the 1 educed mortgage that in the event of the mortgagor selling the property before the .term fixed for the repayment of the mortgage the moneys thereby secured shall become immediately repayable upon demand. The intention of the legislature is that the applicant who has obtained relief shall not iramedi-/ ately endeavour to raakn a profit out *oi the. relief granted 'o him. The epirit of the Bill is that any relief) that is given has been given with the idea of enabling the farmer to retain his property and develop same to the lull extent both for the benefit ' of: himself and of the community.

i Itl might be wise fi r Hi'. Govern-»--'taeni, before passing this Bill, to iurlher amend this sect: in hj providing that no sale of a property' oven, riiich a mortgage has bo-n reduced in pursuance of .in api.Moaiion for relief shall be made without the leave of the Court before the 31st December,'l937, or bs»fors the Court has completed its work of doalhig with applications for adjustment, which- . ever is the earlier date. This would prevent the Court from •being embarrassed by speculative purchases which in some cases, may ■ have no relation to the productive value of the property". (b). Section 47:

,' ; Where a mortgage of any property* „»',",..secures the whole or any part of the purchase money payable to the vendor on the sale of that property and , the amount secured by the mortgage lias been reduced . . by the Order of tho Court the mortgagee shall be en- _ titled to purchase the property at ,;•, such price. . .the price to be fixed ..:. "shall bo an amount* equal to the' '"original purchase price, increased by the value of the improvements effected by' the mortgagor to the property (it any) and reduced by a proper allowance for depreciation. It is difficiitl to understand "why thei legislature has seen fit to give to ai vendor mortgagee, whose mortgage frequently secures mere paper profits that were never represented by the true value of the land, a special privilege which has not been accorded to those mortgagees whose mortgages represent actual hard cash lent to the- mortgagor. There are, of course, cases where tho deposit paid by the mortgagor on the original purchase of the property has been very small in proportion to the total purchase money, and there are other cases where no deposit has been paid at all. If the vendor mortgagee is a competent farmer and could indicate tc the Court that he could farm the property to a better advantage than the mortgagor there might be some reason for this particular provision. The section, however, is not so restricted, and it is open to any vendor mortgagee, whether he has been or is

The whole section bears evidence on Its face of sinister influences having been at work on the port of those institutions which have bad debts, owing to them for accommodation already given to farmers, (d). Section 5. Where ... the Adjustment Commission considers that provision should be made for expenditure of moneys which would increase the productive capacity of the farm lands of the applicant . . . tho Adjustment Commisn sion may order the borrowing of moneys in priority to any" moneys already secured on the property. This is a useful provision in the case of partially developed farms, and prevents a stalemate raising where certain obvious improvements are i-ecessary to enable tho best use to be' made of the properly, such ass stumping, draining, installation of water supply, fencing, and replacement of existing buildings or the r-rection of additional buildings. Such improvements effected under supervision should increase the value of Iho mortgagee's security, but the obvious disadvantage is that a fivsti mortgagee's security is relegated to the position of a second mortgage, the general effect of which is that a mortgagee cannot, if he requires it, obtain financial accommodation ;.gainst his mortgage. The powers,therefore, will be probably used byf the Commission and the Court only in those cases where no other course is open for the development of the property. (e). Section 64; This section; enables the Govern< meat to publish in ,the Gazette lists oil names of, persons .who have applied for an adjustment of • their, liabilities. Mo doubt this provision has been made for the protection of merchants and other business people who customarily sell goods on usual terms of credit to farmers. (f). Section 78; This is rather a lengthy section, which enables a mortgagor to give hjis mortgagee notice requiring the mortgagee to accept a rate of interest which is lower than the rate of interest provided in the mortgage. If the mortgagee does not agree to the sug-

now a farmer or not, to exercise this privilege, 'if his vendor mortgagor chooses to make an application for Telief and succeeds in having the mortgage reduced. An obscure reason that may have guided the legis lature in enacting this section is that the vendor mortgagee before sale actually possessed the whole estate in the prqperty, wliereas a mortgagee advancing moneys on the security of the property presumably only advanc-' c.d. moneys up to a certain proportion of the value of the property. The popular opinion, ever since the Telief legislation commenced in 1931, lias been that the compulsory reduction of the principal sums secured by vendor mortgagees would be quite fair between the parties and should be enforced, that tjje reduction of mortgage, moneys actually avanced ir. hard,cash should not fall on the mortgagee, and if such reduction was necessary the community as a whole, in other words the State, should shoulder the loss. It is not likely that many vendor mortgagees will exercise the privilege given to them under this section, as applications for relief will only be made by those vendor mortgagors who that their property is over-mortgaged. If the mortgagee purchases he must give credit for all amounts paid by the mortgagor in reduction of the origin-

lal purchase price, and also for all I moneys expended by the mortgagor !in improvements effected by him ' .since the date of purchase, less an: allowance for depreciation (if any) of the property during the period that lie has occupied same. ( (c). Section 50. Where at any time! within twelve months before the passing of this Act or any time after the passing thereof, any moneys have been advanced to any farmer applicant for the provision of seeds, manures or stock, or for current working or living oxpen?os, the Adjustment Commission may' make such orders as it thinks fit for the payment or security of the moneys so advanced in priority to any other secured or unsecured debts of the applicant. This section may be described as the "surprise packet" of the whole Bill and it is safe to say that it is rot likely to go through Parliament in its present form. Expressed in) simple language, it means that if a merchant, auctioneer or other person or institution has supplied goods or livestock to a farmer on credit, and finds that he has made a bad debt he can apply to the Commission to have such bad debt made good by being given a first mortgage on the farm property or any farm stock in priority to the existing first mortgagee of such farm property or farming stock. If this section is allowed to stand it means .that in the future any person lending money' in good faith with a reasonable margin of security, either on the farm or on the l stock, may find his security displaced through a farm er purchasing goods beyond his ability to pay for in cash in the ordinary course of his farming operations. i The section would enable frauds to be perpetrated wholesale, because.if A owes to B a debt which is wholly unsecured and is not covered by any free assets of A, B can arrange for A to sell his livestock to C, obtain the' proceeds of the sale and satisfy his debt and then advanco moneys to A for the purchase of replacement stock. A and B can then approach tho Commission and ask that the purchase money for the replacement stock be secured to B in priority td the moneys secured to the existing first mortgagee of A's farm.

gestod reduction of the rate of inter-* est the mortgagor has the privilege. of requiring the mortgagee to accept repayment of his mortgage, provided repayment is made by the mortgagor within three months of the date of the* notice given by him requiring reduction of the rate of interest. This section enables a mortgagor by an indirect method to make repayment of his mortgage where under the termsof the mortgage he has no immediate right of repayment. For instance, in the case of a mortgage for a term of say five or seven years,, or in the case of a mortgage secured on a tabic basis, where mortgages frequently have a currency of up to a maximum, period of 3GJ years. (g). Section 80. This section makes permanent the reduction in the rate of interest by 20 per cent., which was effected by the National Expenditure Adjustment Act in April, 1932. That Act, with certain exceptions, reduced by one-fifth the rate of interest secured by mortgages executed before the Ist January, 1930, and reduced by an equal amount tlie rental under leases exo cuted on or before the same. dato. "The National Expenditure ~Adjustment Act, however, provided that no 'ruch reduction could reduce the rate oL' interest below 5 per cent., and in the case of leases no minimum was prescribed . This reduction took effect without regard to the financial position of the mortgagor or the lessee.

The question has frequently been d'scussed, ever since 1031, whether relief legislation Avas necessary or not, and if necessary on whom the lnss should fall. An enueavour will be made to answer these questions in the next article.