Rights and Liabilities of the Mortgagee

In one line

When the borrower does not pay, the lender may ask the court either to shut out his right to redeem or to sell the property, may sue him personally in four defined situations, and in a few cases may sell without going to court at all.

In exam wording: section 67 gives the mortgagee, in the absence of a contract to the contrary, a right at any time after the mortgage-money has become due, and before a decree for redemption has been made or the money paid or deposited, to obtain from the Court a decree that the mortgagor be absolutely debarred of his right to redeem (foreclosure), or a decree that the property be sold.

Foreclosure and sale: the mortgagee's mirror of redemption

Section 60 gave the mortgagor the right to get the property back. Section 67 gives the mortgagee the right to bring that possibility to an end. The two rights are co-extensive in time and are extinguished by each other: the mortgagor may redeem until a decree of foreclosure or sale, and the mortgagee may foreclose or sell until the mortgagor pays or a redemption decree is made.

Foreclosure means shutting out. A decree of foreclosure declares the mortgagor absolutely debarred from redeeming, and the mortgagee keeps the property whatever it is worth. Sale means the property is sold and the debt paid out of the proceeds, the surplus going to the mortgagor.

Both are decrees of the Court. A mortgagee cannot foreclose by his own act, and, apart from section 69, cannot sell by his own act either.

Which mortgagee gets which remedy

The exceptions in section 67 are the examinable core.

Clause (a). Nothing in the section authorises:

• any mortgagee other than a mortgagee by conditional sale, or a mortgagee under an anomalous mortgage by the terms of which he is entitled to foreclose, to institute a suit for foreclosure; or
• a usufructuary mortgagee as such, or a mortgagee by conditional sale as such, to institute a suit for sale.

So foreclosure belongs to the mortgagee by conditional sale, and to an anomalous mortgagee whose terms give it. Sale belongs to everyone except the usufructuary mortgagee and the mortgagee by conditional sale.

The logic is that foreclosure suits a mortgagee who already holds an ostensible title and needs only to make it absolute, while a usufructuary mortgagee has bargained for income rather than for capital and has no date by which anything is due.

Clause (b). A mortgagor who holds the mortgagee's rights as trustee or legal representative, and who may sue for a sale, is not authorised to sue for foreclosure. He would otherwise be shutting out himself.