REALWorld Law

Real estate finance

Enforcement of security

When a borrower is in default, are there any formalities required or obstacles to be overcome before the lender is able to enforce its security over real estate?



In most cases, the borrower must be given notice of default and prescribed notice periods must be complied with before a lender can enforce a mortgage over land. The notice period will vary in each jurisdiction but generally 30 days' notice will be required before a lender can enforce its real estate security (such as exercising its power of sale).

Loan agreements and security documents will typically describe the events of default that must occur before a lender can enforce its security. Events of default will usually include failure to repay the loan on time, material adverse changes, and breaches of warranties or covenants.

Except where statutorily prescribed notice periods must be complied with, once the security is enforceable, the lender can enforce its security immediately. Depending on the type of security, lenders may enforce their security by appointing receivers and managers or taking possession of the security property.

Security assets can be disposed of by private agreement between a buyer and a mortgagee exercising its power of sale or between a buyer and a receiver and manager (depending on the type of enforcement procedures that have been implemented by the lender). Receivers and managers and mortgagees exercising a power of sale will be under an obligation to achieve market value for the security assets.