Time for mortgage contracts to be written in plain English
We covered great detail in the first three parts of “The Anatomy of A Mortgage Contract” series.
Part one: mortgage description overview is composed of two contracts, a deed and a mortgage, kinds of mortgages available, overview of the process, various kinds of legal property ownership and numerous questions to query of your lender.
Part two: the Individual(s) and/ or company, trust mortgage pre-approval process.
Part three: descriptions of significant number of terms, obligations, covenants, and warrants under the contract. Property legal description and clear title, lending terms as defined by Bermuda governing law, your (mortgagor) obligation to pay, interest-rate calculations, payment order, principal prepayment privilege, mortgage discharge, covenants and warrants, taxes and other property charges responsibilities, lender’s approval required to lease, sell, transfer, or dispose or an interest in property, property insurance responsibility.
This week, we come to the fourth and final part: is the review of a generic copy of a local mortgage contract.
The document is, as I anticipated, a seriously long one, tediously replete with legalese of terms and conditions: regarding kind of mortgage (called a lending facility in Bermuda), amount to be lent, closing and interest rate, repayment structure, prepayment protocol, conditions precedent, security, covenants, representations and warranties, fees, lender’s ability to debit account(s) in right of set-off, assignment, amendments, governing law, severance, explanation of interest rates determined by Bermuda dollar base rate, late payments, bank records, material adverse conditions, interpretations, reasons for additional costs – if necessary, interpretations, certificates of title, comprehensive perils insurance coverage of property and proof of annual renewal, loss payee, confirmation of employment, salaries, investment or other income, secured credit cards, purchase and sales agreement, notice of litigation or other proceeding that may threaten assets, encumbrances disallowed without express lender consent, notice of mortgagor to bank regarding material inability to service the debt, updated financial position documents upon request from lender, borrower’s responsibility to remedy an issue of ownership title to property.
Lender has the right:
• To debit your account, if funds are insufficient as in right of set-off, your other accounts may be debited to fulfil the payment
• To adjust monthly payments or, on demand, require one or more lump sum payments, or even call the mortgage: negative equity is one of the material adverse conditions, but there are others
• To request a current financial statement from time to time
• To require that borrower (and guarantor if used) be in compliance with all terms and conditions at relevant time of drawdowns
• To request that credit cards are cash-secured
• To receive an appraisal of property agreed as satisfactory by the lender
• To receive a good and marketable certificate of title from the borrower.
Conditions precedent, including those above and more in the checklist, are needed to be actioned with required documented proof to the lender in order to initiate loan proceedings.
Understanding the ownership equation
Typically, the buyer would receive a deed over a certain property transferred/conveyed by the seller upon consummation of the purchase and sale contract.
But, unless the property sale is cash only, the title deed does not immediately go to you, the borrower, but to the lender as security collateral.
“Under the Land Title Registration Act 2011 (LTR Act), the grant of a legal mortgage triggers compulsory first registration of title to the real property establishing the mortgagee’s (lender’s) priority position. The mortgagee holds a registered charge only – with title to real property being returned to mortgagor [you] at completion of mortgage repayments by way of statutory vesting.”
Hopefully, this helps with the question often asked, “Our names are on the property, why is my lender holding our deed?” Simple answer is that the bank requires solid collateral securitisation (your property) in order to loan the purchase funds to you. The bank has to assure secure financial recourse if the loan cannot be repaid.
Finally I emphasise again: this lending facility (mortgage) is a legal contract! By signing this contract, you are agreeing to all of the terms and related conditions, etc, within the contract and giving permission to the lender to act accordingly.
When things go wrong and an individual’s home ownership/mortgage is in jeopardy as in “how the lender could do to this to you or anyone else,” it tells me immediately that you, your family, your relatives, your friends, co-workers, any mortgage applicant, etc did not understand the terms of the contract. Lenders are not evil people, they are bound by mortgage contract stipulations written into the financial law of the island, legislated by your representatives.
Finally, readers, it was disappointing to review this “what I would call old-style legalese” document, full of whereases, hereins, aforesaids, conditions precedent and more that can be confusing even to yours truly.
It’s no wonder borrowers are not always sure they understand their rights and their obligations under the contract.
And lest you think that I am dismissing all you readers of great intelligence, the very same issue is stated clearly on the Government’s website: “Most customers do not read or understand the terms and/or read the entire contract.”
Bermuda, and we are now 20 per cent into the 21st century, isn’t it time to present contracts written in modern-day readable terms, along with clear and detailed disclosures of all terms and conditions?
Government proposed amending the Consumer Protection Act 1999 by implementing Measures to Protect Mortgage and Lending Customers. Stated on the government website on July 24, 2020, by Walter Roban, the Deputy Premier and Minister of Home Affairs, it was intended that the proposed legislation would be tabled at the next session of the House.
Doubtless, Covid delayed that action, but researching Bermuda Parliament proposed bills as of last week, November 17, there still is no tabled, proposed legislation.
Readers, my apologies but column space does not permit full explanation of every concept and section.
However, I do plan to write a full narrative of the entire process along with generic case issues resolved – that will be published on the Bermuda Islander Financial Perspectives website and Bermy Bermuda Finance blog, possibly at year end 2022. Part of my continuing commitment to FinLitBermuda™.
Lending and Taking Security in Bermuda: Overview, October 1, 2021, Erik L Gotfredsen, Wakefield Quin Ltd.
Disclosure: Martha Harris Myron has no professional connection to any local mortgage lender; further, local mortgage specific terms and conditions will vary from lender to lender; professional guidance is highly recommended.
• Martha Harris Myron is a native Bermuda islander with US connections. Author of Bermuda’s First Financial Literacy Primer – the Dawn of New Beginnings, and the Bermuda – Bermy Island Finance Blog. Contact: firstname.lastname@example.org