What are the duties of a mortgagee to a borrower when exercising its power of sale under the Transfer of Land Act?

1. In exercising its rights over the security, the mortgagee must act fairly towards the mortgagor, and in a way that does not unfairly prejudice the mortgagor. The duty of a mortgagee to act in good faith can be equated to the duty to not act unconscionably.
2. The mortgagee must take reasonable steps to obtain the best price consistently with its right to enforce its security interest. This requires the mortgagee to consider how the property should be advertised and allow an appropriate time between the advertisement and the sale.
3. The mortgagee’s interest in the property has priority over the interest of the mortgagor so that the mortgagee can protect its own interest. The mortgagee must also have regard to the interests of subsequent security holders.

The facts of the case were quite unusual: the mortgaged land was initially one lot, although prior to the mortgagee sale it was sub-divided into 3 lots, leaving room for an argument (which was accepted by Vickery J, but rejected by the Court of Appeal) that the borrower had a special interest in the house lot of which the mortgagee had to take notice.

This case provides valuable guidance as to how a mortgagee should exercise the right of sale.