Mortgage – what mortgage? A brief history of the form
A mortgage is arguably the most common form of security prepared by lawyers.
Before November 1986, when section 155A of the Land Transfer Act 1952 (LTA) first permitted provisions contained in a registered memorandum to be incorporated by reference in a land instrument, a mortgage was one complete document. It contained all the applicable terms and conditions in relation to the security and, in the case of mortgages for a fixed sum, it also contained all the financial terms.
The separation of financial and security terms occurred with the entry of the large banks into the home lending market and the use of the all obligations mortgage for home loans at the start of the 1980s.
When the Credit Contracts Act 1982 came into effect, the ADLS Forms Committee (as it was then called) published a fixed sum mortgage that incorporated a disclosure sheet. At that time, solicitor’s nominee companies were still in vogue and lending through these vehicles was generally fixed term, fixed rate.
In keeping with the changing times, in 1985, ADLS published the all obligations mortgage which soon became one of New Zealand’s most widely used mortgage forms. Solicitors, some smaller banks, and many finance companies and non-bank lenders documented a home mortgage using their own form of loan agreement coupled with an ADLS all obligations mortgage.
The present-day mortgage
Fast forward to 2017 and the electronic registration environment and, although we refer to a “mortgage” as if it were a single tangible thing, we are referring to the legal concept of a mortgage – or if you prefer, a “virtual mortgage”.
The mortgagor (borrower/guarantor/property owner) no longer signs one self-contained document. Instead a series of documents are signed that indicate the intention to borrow or guarantee and give a charge over land to secure the obligation.
The security is achieved, in the case of a mortgage, by authorising and instructing a lawyer to sign and certify and register a mortgage incorporating the terms and provisions of a registered memorandum. When the e-Dealing mortgage instrument has been signed, and certified under section 164A of the LTA, the instrument is deemed by section 164E to have the same effect as a deed registered by the parties and to satisfy the Property Law Act 2007 which requires certain dispositions of interests in land to be in writing.
The virtual mortgage is therefore a combination of:
- a document signed by the borrower recording the financial obligation to borrow and repay money (amongst other things);
- documents signed by the parties to a mortgage authorising and instructing a lawyer to create, sign and submit an electronic mortgage instrument for registration (together with accompanying documents confirming the lawyer has taken reasonable steps to verify the identity of the parties);
- the inclusion in the electronic mortgage instrument of a reference to a pre-registered mortgage memorandum containing standard terms and conditions applicable to the mortgage security; and
- the provisions of section 164E of the LTA that deem steps 2 and 3 to have effect as if they were a deed signed by the parties to the mortgage.
The single mortgage deed has been replaced by multiple documents and computer systems that are bound together with the glue of legislation.
ADLS Mortgage forms
What started as a self-standing, fixed sum mortgage in 1982, complying with the new credit legislation, is now replaced by a multitude of documents and processes. The following explanation of the forms should help you work your way through to creating a mortgage appropriate for your client’s circumstances.
The first place to start is to decide what form of loan agreement is required.
Term Loan Agreements
There are two forms of Term Loan Agreements, one for Consumer Loans (8008) and one for nonregulated loans (8009).
These forms can be used to accommodate both fixed sum and fixed rate loans or variable facilities and variable rate loans.
Although the terms and conditions are designed to accommodate most forms of lending, you will need to read and understand the detail in the document. If a provision does not accord with your client’s instructions, then delete the clause and add extra pages.
The new WebForms system makes it easy to add pages. This can be done by creating pages in Word on your own PC and then copying and pasting to the additional pages that you can insert in a WebForms document.
The ADLS Term Loan forms should be considered as a base from which to work for the content of the agreement – however, ensuring it reflects your client lender’s wishes remains with the lawyer drafting the document.
The memorandum referred to in the Term Loan Agreements are either of the “all obligations” memoranda which are referred to in the next section. My preference is to use the combined Mortgage and GSA Memoranda 6302 – 2015/4326, as this provides the ultimate flexibility should your client ever wish to lend on personal property to the same borrower. I also prefer to only have one licence for and one form for all types of mortgages and the all obligations mortgage and GSA Memorandum fulfils this objective.
Mortgage Agreements (fixed sum)
These ADLS forms are an alternative to using a Term Loan Agreement but in our view have outlived their useful life. We suggest that, if you are using these, you begin to use the Term Loan Agreements which are more adaptable.
Mortgage Agreements were a panacea, designed to provide lawyers with the equivalent of the financial terms that were included in the old style fixed sum mortgages. They were designed for clients who were not regarded as professional lenders but who wished to lend on a fixed term/ fixed rate loan. They were also directed towards the types of mortgage previously provided by solicitors’ nominee companies.
Mortgage agreement (fixed sum) Consumer Credit contract – 8003
Following changes to legislation that requires lenders to consumer borrowers to be registered financial providers and a member of a dispute resolution service, this form is virtually redundant. You might use it for a family loan – but we would recommend using the Term Loan Agreement instead.
This form refers to the use of Memorandum 2015/4327 which is a memorandum crafted for a fixed sum mortgage.
Mortgage Agreement (fixed sum) non-regulated – 8004
This does not refer to any consumer legislation so it may still be used but I would suggest that use of the Term Loan Agreement is preferable.
This form also refers to the use of Memorandum 2015/4327 which is a memorandum crafted for a fixed sum mortgage.
Your or your client’s own agreement
Licensing issues apart, there is nothing preventing you from utilising your own or your client’s own form of loan agreement and including within it an agreement to mortgage referring to incorporation of an ADLS Registered Memorandum. There are two key things to remember if you or your client wish to adopt this practice:
- First, licensing. Copyright in the form remains with ADLS. Once registered, the form is public record – but not public domain for copyright purposes. Each Memorandum contains a licence to use clauses at the end which contains a representation by the user of the form that it holds a licence from ADLS to use the form. Obtaining a licence is not difficult and simply requires payment of a reasonably modest fee to ADLS for the continuous use of each form.
- Second, if the mortgage is a fixed sum mortgage, make sure that, when preparing the mortgage instrument in the eDealing workspace, the terms used in the fixed sum mortgage are reflected in your loan agreement.
Do not forget that, when preparing a mortgage instrument in the e-Dealing workspace, you can upload additional mortgage clauses for insertion in the mortgage. This provides you with the flexibility to still include the mortgage terms that should be part of the security that are not included in the pre-registered memorandum.
You will find three forms of Mortgage Instrument in WebForms. You will only use these if you are asked to prepare a mortgage for a client who is intent on lodging the paper mortgage itself.
These forms are redundant if the mortgage is lodged for registration by a practitioner. Section 24 of the Land Transfer (Computer Registers and Electronic Lodgement) Amendment Act 2002 requires all instruments lodged by a practitioner to be lodged electronically with effect from 23 February 2009.
There are three Registered Mortgage Memoranda, discussed below.
6302 – Memorandum of general terms and conditions 2015/4326, intended for inclusion in General Security Agreement (ADLS) Form Ref 6301 and Memorandum of Mortgage (all obligations)
For the reasons outlined above, 2015/4326 should be the Memorandum of preference and always used in conjunction with a Term Loan Agreement. As far as I am aware, this ADLS form is unique in that it is the only Registered Memorandum that also includes provisions for no land securities. It achieves this by including unique wording that distinguishes non-relevant provisions that are not to be incorporated into a mortgage of land, such as provisions that deal with personal property security. By using this drafting technique, the Registrar General of Land could ignore the non-relevant provisions for they are not provisions for incorporation into mortgages of land.
The practical benefit of having this Memorandum on the public record is that it is possible to achieve an all property security that includes both personal property and land using one set of general terms and conditions, thus avoiding having two sets of security terms, one for mortgages and one for personal property which may have conflicting text.
If you are asked to take a mortgage or mortgages over land owned by a company and an all present and after acquired personal property security over the assets of that company, then this can be achieved by simply incorporating this Memorandum into both the General Security Agreement and the Mortgage Instrument.
Alternatively, if you are asked to register only an all obligations mortgage, the non-relevant provisions wording means that anything that relates solely to personal property is not incorporated into the mortgage.
8005 – Mortgage Memorandum – Fixed Sum (RGL 2015/4327); 8010 Mortgage Memorandum – All Obligations (land only) (RGL 2015/4328)
The other two Memoranda only contain provisions for a mortgage of land.
If prizes were to be handed out for the most efficient and simplest mortgage form, the Auckland Savings Bank form pre-1980 would take first place. The Bank chose to rely on the terms and conditions implied in mortgages by the Property Law Act 1952 with the proviso that two months’ notice of default was reduced to one month. Thus, its full document spanned only three pages of large and spacious type. It was only the introduction of credit laws that required disclosure of other terms that made this form redundant.
The 4th Schedule of the Property Law Act 2007 contains some extensive and workable terms and conditions that are implied in all mortgages of land unless they are negative or amended. Being terms implied by law, they do not need to be disclosed under the Credit Contracts and Consumer Finance Act 2007. If you are feeling confident, you may like to consider using these terms instead of a memorandum.
However, if your practice is based on prudence rather than self-confidence, you may prefer to stick with the ADLS forms.
Should you have any questions or suggestions, please forward them to the ADLS Documents & Precedents Committee via firstname.lastname@example.org.