“At an online auction of land recently near me at home, the land was put up for sale by a receiver and the owners of the land said they were not selling it. There is also a lease on the land for 35 years. If a receiver is assigned to my bad loan/mortgage, can they sell my land to try and clear the debt? If I have some of that land leased out, can they still sell it”
The fundamental answer to both your questions is yes. If you default on your mortgage loan then a receiver or bank can sell your land to clear your debt and they can still sell it even if you have it leased out. Whether the bank or the receiver sells will depend on whether the receiver is granted a power of sale under your mortgage.
This position arises because when a person takes out a secured loan from a bank – they enter into a mortgage which secures the loan on the land. One of the usual provisions of the mortgage is a right for the bank to take possession of the land itself and sell it or, alternatively, to appoint a receiver in the event that the borrower defaults on the loan.
The powers of the receiver depend on the terms of the mortgage. He/she will generally be entitled to take possession of the land, to rent it and sometimes he may be entitled to sell it.
Although appointed by the bank, the receiver acts as agent of the borrower so the bank is not liable for him and is insulated in that respect and this is why banks like to appoint receivers even though they have to pay them hefty fees. Receivers are appointed by the bank by deed. The owners may dispute the legality of the mortgage or the circumstances in which it was entered into or the validity of the receiver’s appointment in a bid to prevent the bank/receiver from selling the mortgaged. However, in order to stop the sale they would have to bring a court case and it would be very difficult for them to succeed in that court case as mortgages are generally tightly drafted by banks to ensure that they can be enforced by the bank or its receiver if the borrower defaults.
If land is leased
A property can be sold subject to a lease. The market value of agricultural land with a sitting tenant would be a lot less than the market value with vacant possession and consequently the bank/receiver would normally want the tenant out before the land is put up for sale.
Generally the mortgage provides that the borrower needs prior written consent from the bank before they can lease out the property and if they do not obtain this prior written consent, the borrower is in breach of the loan and the bank can demand full payment of the outstanding loan immediately and in default take possession of the mortgaged land or appoint a receiver over it. The bank will also argue that they are not bound by a lease in circumstances where prior written consent was not obtained.
If the landlord signed the mortgage after 1 December 2009, the Land and Conveyancing Law Reform Act 2009 applies. Section 112 provides that a borrower may lease the property with the written consent of the bank but such consent may not be unreasonably withheld. However, a tenancy created without the mortgagee/banks consent is not automatically void. It is “voidable” at the option of the bank which can terminate it by proving (a) that the tenant had actual knowledge of the mortgage at the time he entered the lease and (b) the lease had prejudiced the bank. While (a) could be proved by showing that a mortgage was disclosed as a burden on the folio, (b) could be proved by obtaining a valuation from an estate agent comparing the likely sale of the property with and without the tenant in situ.
If the landlord signed the mortgage before 1 December 2009, the Conveyancing Act 1881 applies. Section 18 of that 1881 act provides for similar terms to the 2009 act, ie the tenant having actual knowledge of the mortgage and the lease having prejudiced the bank. However, section 18(3) provides that it only applies to occupational leases which are less than 21 years in duration. Consequently section 18 of the old legislation would not have saved a tenant in a case where the lease was purportedly for 21 years or more.
I would always check title when acting for a tenant farmer and if the folio discloses a mortgage on the property, I would request prior written consent from the bank to the lease before allowing the tenant into occupation. Failure to do so, may result in the tenant being evicted if the receiver/bank wishes to sell the property.
Disclaimer: The information in this article is intended as a general guide only. While every care is taken to ensure accuracy of information contained in this article, Aisling Meehan, Agricultural Solicitors does not accept responsibility for errors or omissions howsoever arising. Email firstname.lastname@example.org