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Monograph : Mortgages |
Contents |
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| (11) Mortgage
Documents |
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| Obtaining a mortgage loan
invariably involves the execution of a mortgage deed by the
mortgagor in favour of the mortgagee. Besides the mortgage,
there are also other documents that the bank may require to
be executed to provide better protection for the repayment of
the mortgage loan. |
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1. |
Mortgage |
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Each bank in Hong Kong has its own standard mortgage
form. In May 2000, the Hong Kong Mortgage Corporation
Limited introduced a Model Mortgage Deed which banks may
adopt. This model mortgage deed is in English and a Chinese
translation is available. Generally speaking, a mortgage
deed will contain, among others, the following provisions:
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| a. |
Charging/mortgaging
clause
The mortgagor charges/mortgages his property
to the bank as security. In an "all-monies"
mortgage, the property will be security for all
the indebtedness from time to time of the mortgagor
without any ceiling. Therefore, if a mortgagor
requests a release of the mortgaged property from
the mortgagee, the mortgagee, in principle, has
the right to request the mortgagor to repay all
his indebtedness then owing to the bank, including,
for example, any overdraft facilities granted
after the advance of the original mortgage loan.
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| b. |
Redemption right
When the mortgagor has repaid all his debts
to the mortgagee bank secured on the mortgage,
the mortgagor will have the right to request the
mortgagee bank to release the mortgaged property
to him. However, the relevant legal costs of the
release will be borne by the mortgagor. |
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| c. |
Events of default
Apart from failure of the mortgagor to repay
his indebtedness, a mortgage deed will also set
out other events of default under which the mortgagee
bank will be entitled to request all the money
secured under the mortgage to be repaid immediately
and to take possession of the mortgaged property.
Such events include (among others) the mortgagor
becoming bankrupt or being wound up, the mortgagor's
breach of any provisions in the mortgage and any
breach of warranties in the mortgage. In addition
to any events of default, most mortgagee banks
also reserve the overriding right in the mortgage
deed to require the mortgagor to repay all outstanding
indebtedness on demand at its full discretion. |
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| d. |
Mortgagee's remedies
When any event of default happens, the mortgagee
bank will have the power to exercise its rights
over the property, including entering into possession
of the property, letting or selling the property
and exercising any right of ownership over the
property. The mortgagee bank also has the right
to appoint a receiver to exercise said rights
on its behalf at the cost of the mortgagor. |
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2. |
Facility letter |
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When a loan is approved, the bank will usually issue
a facility letter to the borrower. The facility letter
will set out the amount, interest rate and tenor of the
mortgage loan and other terms and conditions of the loan.
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3. |
Guarantee |
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If the borrower is not capable of producing sufficient
income proof to support his loan application or where
the borrower is a limited company, the bank will usually
require the borrower to provide a guarantor acceptable
to the bank. The guarantor will be required to execute
a deed of guarantee to the bank. In respect of a borrower
which is a limited company, the guarantor is usually
a director or major shareholder of the borrower.
The bank will usually incorporate a "principal
debtor clause" in the guarantee giving the bank
the right to request the guarantor to pay without first
demanding payment from the borrower. |
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4. |
Rent assignment |
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If the mortgaged property is subject to existing tenancies
and particularly if the amount of rent receivable is substantial,
the bank may require the mortgagor to execute a rent assignment
assigning the mortgagor's interest in the rent to the
bank as an additional security for the mortgage loan.
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