The Enforcement Of Mortgage-type Security Over Real Estate

On 30 January 2018, following concerns raised by Members of Parliament and increasing public commentary regarding mortgage enforcement, particularly residential foreclosures, the Minister of Financial Services and Home Affairs requested, through the Honourable Attorney General, that the Law
Reform Commission (the “Commission”) conduct a review of the Cayman Islands’ legislative framework governing mortgage-type security over land. 

The objective of the review was to determine whether the law fairly balances the rights of lenders (chargees) and borrowers (chargors), and whether legislative reform was necessary to provide greater clarity, fairness, and protection in mortgage enforcement proceedings.

The Commission was tasked with:

(a) assessing whether the existing legal framework under the Registered Land Act (2018 Revision) appropriately balanced the interests of lenders and borrowers;
(b) considering the introduction of additional borrower safeguards, including clearer notice requirements and limitations on enforcement actions;
(c) determining whether legislative reforms should target residential property specifically, as opposed to a uniform regime for all land types;
(d) evaluating whether reforms should be made by amending existing laws or through new standalone legislation;
(e) exploring whether the reintroduction of foreclosures as a legal remedy is appropriate;
(f) examining whether a Pre-lending and Pre-action Protocol should replace the existing voluntary Banking Code to promote fair engagement between parties prior to legal action; and
(g) conducting a comparative legal analysis of similar frameworks in the United Kingdom, Ontario (Canada), New South Wales (Australia) and applicable European Union directives on credit and consumer protection.

Following extensive legal and policy research, the Commission published a Discussion Paper titled “The Enforcement of Mortgage-Type Security Over Real Estate: Is Reform of the Law Necessary?” dated 23 November, 2018.

The Discussion Paper examined:

 (a) the transition from common law mortgages to registered charges over land;
 (b) enforcement powers under sections 72, 75, and 77 of the Registered Land Act (2018 Revision);
 (c) procedures for property sales by public auction;
 (d) the sales process and the requirement to act in good faith;                                                                                                                                                                                                    (e) borrowers’ rights to redemption and to claim damages after sale;
 (f) voluntary guidance in the Cayman Islands Bankers’ Association Banking Code;
 (g) stakeholder concerns regarding equity loss and lack of transparency;
 (h) whether residential property should receive enhanced legal protection; and
 (i) comparative legal frameworks in the UK, Canada, and Australia.

To guide stakeholder input, the Paper posed a broad range of consultation questions grouped under three main categories: (1) overarching policy questions regarding the potential need for new legislation;(2) questions specific to possible amendments to the Registered Land Act (2018 Revision), including
reforms to enforcement procedures and borrower protections; and (3) questions focused on section 72 notices such as notice period, content, method of service and the introduction of a formal pre-action protocol. These questions formed the basis of the consultation process.

The consultation period commenced on 23 November, 2018 and, concluded on 31 May, 2019.

On 28 July, 2021, the Commission submitted its Final Report titled “The Enforcement of Mortgage-Type Security Over Real Estate: Is Reform of the Law Necessary?” to the Attorney General. It was supported by a proposed Registered Land (Amendment) Bill, 2021.

Key recommendations from the Final Report include:

• reform of the Registered Land Act (2018 Revision) to address deficiencies and enhance protections for chargors, particularly residential property owners;
• proposed amendments aimed at streamlining charge provisions and introducing a Pre-lending and Pre-action Protocol designed to:
• promote fair and reasonable conduct between chargees and chargors in matters concerning land charges; and
• encourage proactive engagement before enforcement action to facilitate agreement and dispute resolution;
•  requiring borrowers to sign a declaration confirming their understanding of enforcement rights and protocol compliance;
• improved default notices to require detailed written notice of the breach, remedy options and consequences;
• notice publication requiring enforcement notices to be published in a widely circulated local newspaper and posted on the affected land; and 
• court oversight.
  
  

The full details of the proposed amendments are set out in the Registered Land (Amendment) Bill, 2021, which can be accessed below.