February 2018 | By Chelon Carr-Newbold
The residential mortgage business in The Bahamas – a new game changer
This is an explanatory memo on the Homeowners Protection Act, 2017 (“HPA”) and is only intended to give the main highlights.
The purpose of the HPA is to provide certain protections to owners/mortgagors of residential dwellings (including members of their immediate family who have contributed to the payment of the mortgage) before a bank or other institutional lender/mortgagee can initiate foreclosure proceedings or exercise its power of sale. It should be noted that the HPA only applies to financial institutions that provide, purchase or otherwise service mortgages – in other words, it does not apply to private/individual mortgagees. It should be further noted that the HPA only applies to mortgages of residential dwellings and is not applicable to commercial property.
Any benefit which is otherwise conferred upon a mortgagor by the mortgage or by any other law would not be prejudiced by the HPA – in other words, the HPA would not override any benefit that the mortgagor may have under the mortgage or the Conveyancing and Law of Property Act (“CLPA”). Accordingly, any conflicting provisions under the HPA with the mortgage or the CLPA should be reviewed and carefully considered.
A mortgagee cannot institute foreclosure proceedings or exercise its power of sale unless the mortgagor is served with at least 30 days’ notice and given the opportunity to cure the default under the mortgage. This notice period prescribed under the HPA remains subject however to the provisions of the mortgage or the CLPA where, for example, a longer notice period is otherwise prescribed. It should be further noted that section 55 of the CLPA regulates the service of notices generally under the statute but this section does not apply to notices served in court proceedings and therefore section 4 of the HPA would otherwise prevail with respect to the regulation of notices in foreclosure proceedings.
Where the mortgagee issues a notice that it intends to exercise its power of sale, the mortgagor is afforded certain protections as follows:
- the mortgagor or a member of his immediate family who has been contributing to the payment of the mortgage may apply to Court within 28 days of receipt of such notice to postpone the sale (section 8)
- if the mortgagee is unable to secure a sale of the property at market value within 6 months from the date of the default notice or the date of vacant possession, the power of sale cannot be exercised unless certain conditions are met (section 11)
- if the mortgagee wishes to sell the property at an undervalue, it must give notice to the mortgagor and the mortgagor has the right to issue an objection notice of its intention to seek certain relief
- the mortgagee cannot sell to related parties – i.e. employees, family members of employees. Otherwise, doing so would be a punishable offence (section 12)
Where the mortgagee sells under its power of sale within 5 years of the date of the last advance by the mortgagee, the mortgagee is entitled to 50% exemption from stamp duty on the conveyance. The mortgagee is also prohibited from recovering any stamp duty payable on the conveyance from the mortgagor.
The mortgagee has a 6-year limitation on enforcing a judgment against the mortgagor (section 23(3))
In summary, the HPA is a game changer in the residential mortgage business. It has imposed significant restrictions on banks and other institutional lenders in order to protect the rights and interests of homeowners and members of their immediate family who have contributed to payment of the mortgage. Stakeholders in the industry have strongly objected to these reforms and it has been reported that the Minnis administration is reviewing the legislation to determine whether amendments should be made.