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Monograph : Encumbrances Contents
 
  2. Interest of financier
     
   
a.

General

A financier, usually a bank or financial institution, requires security over a property to secure the repayment of loan or other credit facilities. Different security documents are required for different situations. Loan or security documents such as a loan agreement and guarantee do not touch on the property and normally would not amount to encumbrances.

   
b.

Legal charge/mortgage

If a property is not subject to any prior charge/mortgage, a first legal charge/mortgage can be created. It should be registered within the prescribed time so as to have priority over any subsequent registrable instruments affecting the property.

Save for some legal charges/mortgages under certain housing schemes, most legal charges/mortgages nowadays are "all monies" legal charges/mortgages. Under such a legal charge/mortgage, the property is charged/mortgaged to secure repayment of all sums of monies from time to time due and owing by the borrower to the lender. Thus, a prospective purchaser should be advised to check with the vendor if the purchase price is sufficient to repay all monies due and owing under the subsisting mortgage of the property created by the vendor before paying any initial deposit to the vendor on the signing of the provisional agreement for sale and purchase.

   
c.

Second legal charge/mortgage

Under this document, the security, powers and interest of the second mortgagee rank subsequent/second to those of the first mortgagee under the first legal charge/mortgage.

   
d.

Equitable mortgage

This document enables a purchaser to charge and assign his interest under an agreement for sale and purchase of a property in an uncompleted building to a financier. Upon completion of the purchase, the purchaser/mortgagor executes a first legal charge/mortgage of the completed property to the financier pursuant to the terms of the equitable mortgage.

   
e.

Second equitable mortgage

Under this document, the security, powers and interest of the second mortgagee rank subsequent/second to those of the first mortgagee under the first equitable mortgage.

   
f.

Further charge

This document creates a charge over a property which has previously been mortgaged/charged to the same lender to secure additional loan facilities not secured by the previous mortgage/charge. A further charge is normally made where the first legal charge/mortgage has been made to secure a fixed loan rather than "all monies".

   
g.

Building mortgage/debenture

Under this document, the developer mortgages/charges a building site as security to obtain finance for the development of the site. In the event that the developer does not repay all outstanding loans on completion of the development, arrangements will be made for partial release(s) of unit(s) in the development upon completion of the sale of such unit(s) to individual purchaser(s) while the mortgagee/debenture holder will retain its interest and rights as mortgagee over the remaining units in the development.

   
h.

Supplement to debenture

This document is required when the terms of the principal debenture (such as the loan repayment date or terms) are varied in one way or the other.

   
i.

Transfer of mortgage

With the development of the secondary mortgage market, transfers of mortgages have become more common. Under a transfer of mortgage, the mortgagee transfers all rights, interest, benefit and entitlement under a legal charge/mortgage for a consideration to another financier, such as the Hong Kong Mortgage Corporation Limited.

In the event of the sale of a property ("the subject property") which is subject to a transfer of mortgage involving a number of properties (of which the subject property is one), the vendor should be advised of the additional costs for obtaining a certified copy of the transfer of mortgage and any related documents (which can be voluminous) as proof of title.

   
j.

Appointment of receivers

A mortgage document usually empowers the mortgagee to appoint, on the mortgagor's default, a receiver to take possession of the property. Where this is done, a document usually called "appointment of receiver" is executed by the mortgagee to record such fact and registered in the Land Registry.

   
k.

Memorandum of deposit of title documents

Instead of signing formal security documentation, an owner may simply deposit the title documents of a property with a mortgagee as security for a loan. A memorandum of deposit of title documents may be signed to record such deposit. This informal security is gradually losing popularity these days.

It should be noted that in certain cases where no memorandum of deposit of title documents is signed, an equitable mortgage will nevertheless be created by the act of depositing the title documents. Such an equitable mortgage (not being in writing) is not registrable. In such circumstances, a purchaser may be regarded as having constructive notice of such an equitable mortgage if he fails to make due enquiry on the vendor's failure to produce the original of the title documents.

This is one of the reasons why it is important to check that the owner is able to deliver the original title documents on completion. In the event of the loss of original title documents, secondary evidence such as a statutory declaration made by the appropriate person explaining the circumstances for the loss and confirming that the title documents have not been deposited as security may have to be produced.

   
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