THE MORTGAGE ACTS

Taranaki Daily News, 13 July 1935, Page 10

THE MORTGAGE ACTS

( LEGISLATION EXPLAINED DR. A. H. BELSHAW’S ADDRESS. HAWERA QUESTIONS ANSWERED. An explanation of obscure points in the mortgage legislation passed at the recent session of Parliament was given by Dr* A. H. Belshaw, economic adviser to the : Minister of Finance, to an audience of 150 ■ at Hawera on Wednesday night. Four I bodies, the South Taranaki Herd Test- . ing Association, the Egmont A. and P. ' Association, the Farmers’ Union and the Chamber of Commerce, co-operated to • have Dr. Belshaw present. A welcome, on behalf of the town ano. ! district was extended to Dr. Belshaw by ■ the Mayor, Mr. J. E. Campbell, who expressed appreciation of Dr. Belshaw’s • willingness to accept the invitation of the South Taranaki Herd Testing As- • sociation to explain the very important measures under review. There was pro- ' bably no greater authority in New Zealand on the legislation. Those on the stage with Dr. Belshaw and the Mayor were Messrs. E. K. Cameron, president of the Hawera Chamber ! of Commerce, W. H. Reynolds, president of the Herd Testing Association, and W. ■ A. Sheat, president of the South Taranaki provincial executive of the Farmers’ Union. TWO DISTINCT ACTS. 1 During the recent session of Parlia5 ment two important Acts were passed which were quite distinct from each other, said Dr. Belshaw. These were the Mortgage Corporation of New Zealand Act and the Rural Mortgagors’ Final Adjustment Act. Both Acts had one fea* ture in common—they were part of a general policy of reducing costs in the . light of the new price situation which had developed since 1930. ! “In addition,” said Dr. Belshaw, the two measures are related, in that the Mortgage Corporation is expected to assist in refinancing after the final adjustment of the liabilities of rural mortgagors is made.” The main purposes of the Mortgage Corporation Act could be expressed as follows: The first object-was to provide ’ an alternative to the unorganised market ’ for private ’ finance in the form of a ' system which was based in essentials on ’ similar svstems in other countries. Like J comparable institutions elsewhere, the mortgage corporation would replace individual security by the collective security of the whole of the mortgages held ’ by the coi-poration. It was argued that the mortgage . corporation would be superior to individual 1 mortgage finance because it would provide for economy of administration ' through its large size, it would make provision for adequate reserves against loss and would establish an elastic system of finance through the issue of bonds to the public. , A second object was to reduce mterest • to the lowest level consistent with sound ! finance by obtaining finance by the issue 1 of bonds'at practically gilt-edged rates, • by reducing the margin between borrowing and lending rates and by the economies of large-scale management. A third ' object was to encourage the borrower ! to gradually liquidate his debt by lend- ' ing on table mortgage. Fourthly, an ! object was to transfer Crown securities ■ to an institution not directly subject to ■ political pressure and at the same time ' provide a more elastic system of finance ' than was likely to develop under direct lending by a State department through the issue of bonds to the public which did pot directly add to the public debt.. i There was no intention to create a ■ monopoly. CAPITAL OF CORPORATION. i ■ • The share capital was £1,000,000, one s half of which was to be allotted to the ! Minister of Finance and the other to be ' offered to the public for subscription. ’ The professor then detailed particulars i relating' to the allotment of shares, the ■ management of the corporation and other I details relevant to the setting up of i the corporation. ; The main business of the corporation, ’ he said, was to make advances against ; the security of land and improvements thereon. There was no limitation of the purpose for which the loans might be extended nor to the amount advanced to any one borrower. Advances must be made against the security of first mort- • gage over land, but mortgages over stock ; and chattels might be taken to safet guard existing land mortgages held by : the corporation. An advance might be made up to two--1 thirds of the valuation of the security, ■ but this might be increased to four- . fifths of the value of the security in the ■ case of rural mortgages in existence at I the time of the passing of the Act, any loss attributable to the difference being guaranteed by the State. The valuation ’ of rural mortgages was to be based pri- ; marily on the earning capacity of the , property against which the advance was ’ to be made, and in order to check speculation the board of the corporation might ' require that any mortgage became due • on the disposal of the property. The rate ’ of interest chargeable on an advance was ’ to be limited to 1 per cent above the : rate on the last issue of securities to I the public prior to the date of the , mortgage. Advances were to be made on table mortgage for a period not exceeding 50 1 years, but in special cases the corpora- ■ tion might advance on flat mortgage for s a period not exceeding five years, and this period might be extended for a further five years. Mortgages might be ' repaid in advance in securities of the last ! issue prior to the date of the mortgage, but the board could, at its discretion, accept such pre-payments in cash. TRANSFER TO CORPORATION. Broadly speaking, Dr. Belshaw said, all the mortgages of the State Advances ' were to be transferred to the corpora- • tion, but any security or class of securi--1 ties might be excluded by Order-in--1 Council. Stock was to be issued to the ■ Crown in return for the securities of > an amount and at a rate of interest to be ■ agreed upon. All capital losses on secu- ’ rities taken over by the corporation were ■ to be borne by the State. > The rural intermediate credit system ’ remained substantially, said Dr. Belshaw, but the board of the corporation was to erercise the functions of the pre- . sent board as from a date to be fixed by j. Order-in-Council. The limit of £2OOO which now applied in the case of direct L loans was removed, as also was the ret quirement that such direct loans must I be guaranteed. The corporation was to be liable for rates and taxes to the same ’ extent as if it were a company incorpor- ’ ated under the Companies Act, 1933, except that in its capacity as mortgagee, under any mortgage transferred to it by ‘ the Crown the corporation was to enjoy the same protection and exemption in respect of rates as the original mortgage, » so long as the mortgage deed transferred f from the State remained in force. , The purpose of the Rural Mortgagors’ i Final Adjustment Act was to reduce the > excessive liabilities of farmer mortgagors 3 to within their capacity to pay and thereby to retain reasonably efficient j farmers in production. The Act itself . was framed first to give general direcr tions as to the principles to be followed, 1 second, to provide machinery for some urufprmity. in the application of thnsa

principles through the setting up of me Court of Review; third, to leave sufficient elasticity to enable each case to be considered on its merits in the light of these principles and enable accounts to be taken of the relative hardships on the mortgagors and mortgagees, and fourth, to encourage voluntary settlements at every stage. The Act was to apply to those whose normal income was derived wholly or principally from land used for agricultural purposes. It was limited to mortgages executed prior to April 17, 1931, or mortgages given in substitution thereof. The machinery for the administration of the Act consisted of the Court of Review, together with adjustment commissions operating on much the same lines as at present. Provision was made for appeal to the Court of Review against practically all the decisions of adjustment commissions, but there was no appeal against the decision of the court. Under the Act the mortgagor was required to give a list of his assets and liabilities and of all his debtors and creditors. This list must be verified by statutory declaration and might be amended from time to time, any creditor being allowed to inspect the list as filed. A provisional trustee was then to be appointed, his function being to act as the agent of the mortgagor, to receive moneys and make payments and to keep a proper record thereof. Any creditor • who was entitled to receive the whole or the greater part of the proceeds from the sale of the stock or other chattels was empowered to appoint a provisional trustee. Failing this the adjustment commission had to call a meeting of creditors with a view to arriving at a voluntary adjustment. Any creditor who considered himself to be aggrieved might appeal against the adjustment to ■ the Court of Review. In cases where voluntary adjustments were not made the commission was then to decide whether or not a stay order was to be granted. If a stay order was not made the mortgagor was to be removed from the protection of both Acts, and creditors could exercise their ordinary rights, except that payments of principal and interest for other moneys owing might be postponed for a period of 12 months. GRANTING OF STAY ORDERS. In determining whether or not a stay order was to be granted the speaker said the adjustment commission must have regard to the fact that the paramount object of the Act “is to provide a means of giving to farmer mortgagors such relief from their financial obligations as will enable them to be retained in the use and occupation of their farms as efficient producers, except in cases where the giving of such relief would involve the imposition of undue hardship on mortgagees or other creditors.” The effect of the stay order was to protect the mortgagor against. proceedings by any creditor except -with the leave of the court while he was subject to the Act A stay order might be granted for a period of five years, but where a farmer had been operating under a budget under the principal Act at the time when the stay order was issued the period of five years could be taken to include a prior period of up to two years. A stay order could be cancelled if the debts of the mortgagor were paid or if it was deemed that the mortgagor no longer required the protection of the order. It-could also be cancelled on the spplication of any creditor on the ground that the conduct of the mortgagor or a change in circumstances rendered the stay order no longer just and equitable. Expressed in general terms the trustee appointed acted as the agent of the mortgagor, received any moneys and could sue for debt, said Dr. Belshaw. During each year that the stay order was in operation a budget was to be ■ prepared by the trustee in conjunction with the adjustment commission. The budget could be appealed against if the . ordinary rules of priority were not observed. The purpose of the budget was to enable the finances of the farmer to be planned in advance to ensure that adequate living and working expenses were met, and such surpluses that remained could be divided equitably among mortgagees and others having claims on the pocket of the individual in the order of their respective priorities. During the operation of the stay order the. mortgagor might not encumber or dispose of any property save by the consent of the adjustment commission. At the end of the period of the stay order a final adjustment of liabilities was to be made, DETERMINING VALUE. In determining the provisional basic value the following factors must be taken into account: (a) The relative efficiency or inefficiency of the mortgagor as s farmer; (b) the extent to which the farm had not been used to its full productive capacity during the operation of the stay order and (c) such other matters, if any, affecting the farm property as were considered relevant. On„the determination of the basic value liabilities in excess were to be written off and were to be regarded as unsecured debts, the reduction in liabilities being made in order of priority. The court . was required to determine the value of stock and chattels, and the excess lia- • bility was written off in the same way. ; The court then decided whether or not the mortgagor was to remain in possess- ; ion. If the court decided that the ■ mortgagor was not to remain in : possession a mortgagee might take over the property, subject to his becoming > liable for prior encumbrances exclusive ■ of arrears of rates, taxes, interest and other charges. Compensation was to • be paid to the mortgagor of such an I amount as was determined by the court. . The compensation so paid to the mort- ■ gagor could not become available to . satisfy the claims of unsecured credit- . ors. The mortgagor might elect not to . remain in possession of the property, in ; which case the same conditions applied, , -or the court might direct that the pro- , perty be sold at auction, the purchaser being required to pay in cash an amount equal to the compensation. The claims of unsecured creditors, including creditors in respect of liabilities , which were written off on the expiration j of the stay order, might be satisfied from any free assets of the mortgagor. To , the extent to which the claims of unsecured creditors were not satisfied they ■ should be deemed to be discharged. As soon as possible after the liabilities had been adjusted the stay order would be formally discharged by the court. “Four points may be noted in conclusion,” said Dr. Belshaw. “One is that the Act is to bind the Crown, and Crown mortgagors have the same rights as private mortgagors. Two, any person who is brought under the Rural Mortgagors’ Final Adjustment -Act is removed from the protection of the Mortgagors and Tenants’ Relief Act. Three, the protection of neither Act continues if a stay order is not granted or is cancelled, if a voluntary adjustment is , arrived at, if the stay ordef is terminated and liabilities are adjusted. Four, the Mortgagors and> Tenants’ Relief Act continues in operation indefinitely in respect of rural mortgages which are not brought under the Rural Mortgagors’ Final Adjustment Act and of urban mortgages, provided that these otherwise I come within the scope of the principal ' Act.” ' A number of questions affecting re- , turned soldier farmers were presented, . tlie first one asking what advantages i would accrue to the settler if he came t in under the provisions of the Mortgage • Corporation Act. Dr. Belshaw said in reply that he did ; not think the position would be affect- i > ed except insofar that a lower rate of | i interest might be charged. Any price

rights under the existing mortgage remained until such time as they might be varied. What benefits would accrue to returned soldiers would depend on the extent to which the Government was prepared to go in the case of hardship with reference to soldier settlers. Mr. G. R. Horsburgh inquired whether a person could open a trading account after becoming a party to the Act without the consent of the trustee. If such action were carried out there was a danger of the stay order being cancelled, said Dr. Belshaw in reply. Another question was put inquiring whether in the case of a man owning three farms, two of which were profitable and one operating at a loss, the farmer could apply to have an adjustment made in the' case of the encumbered farm. Mr. L. A. Taylor: The premises of the question are unsound because no farmer is unencumbered at present. (Laughter). In reply to Mr. W. G. Simpson Dr. Belshaw said that of the amounts written off at the end of five years half would go to the creditors. Mr. Taylor, in a long question, mentioned the hardship entailed as the result of writing down mortgages to the basic valuation. Dr. Belshaw: What particular clause in the Act do you want me to explain? Mr. Simpson asked if the intention of the Act was to assist the farmer at the end of the budgetary period rather than to keep him a life-long slave to the system. • Dr. Belshaw said in reply that noi one knew what was going to be the | relationship of the basic value to the circumstances at tha end of fivfi years.

! The actual weight given to the particular circumstances and the rate were matters I for the commissions and the Court of ; Review. To Mr. J. L. Carter, who asked i whether .in the event of the basic valua- ■ tion not being sufficiently large to war- ■ rant carrying on the farmer would have to go off, Dr. Belshaw said the farmer s himself would have a say in the matter. Mr. Simpson: Suppose a farmer thinks . he doesn’t require a trustee and the . mortgagee decides that he does. Does he ■ have to have one, despite his wishes? I Dr. Belshaw': It is a matter for the Court of Review, and if the court de- ■ cides he has to have a trustee he will • have to agree. > In reply to Mr. W. A. Sheat Dr. Belshaw said unsecured debts were wiped j out when the farmer came under the Act. f Pleasure at having the opportunity of » hearing Dr. Belshaw explain the legis1 lation was expressed by Mr. W. G. Simp- > son in moving a vote of thanks, which was seconded by Mr. L. A. Taylor and - carried by acclamation. The address had 2 been both lucid and pleasant, said Mr. e Simpson, and he personally deemed it a a tg