A critical examination of the application of the neighborhood principle to mortgagee’s duty to third parties in common law legal systems
Author(s): Dr. Solomon O Afolabi
Abstract: The power and the right to sell the mortgage property is the most central of all rights and remedies available to a mortgagee particularly to legal mortgage created by deed. The mortgagee’s power of sale is the right of a mortgagee to sell property if the mortgagor defaults. In particular, it refers to the method by which a mortgagee use his power under the mortgage deed to sell the property mortgaged as security for the mortgage loan without having to go to court. The mortgagee is obligated to behave in good faith when using his power of sale and same time exercise a “reasonable degree of care” in dealing with the sale. This paper examined the nature of the duty of care to include acting in a trustworthy manner to exercise reasonable prudence to achieve the mortgage property’s real market value at the moment of sale and that the sale must be genuine sale by the mortgagee to an impartial buyer for an honest price. The paper also postulated that the mortgagee has a duty of care not just to the mortgagor but also to any mortgage guarantor and the holder of a beneficial interest in the mortgage property since they are all “in very close ‘proximity’ to those who conduct the sale”. This paper brought to the fore the applicability of the neighbourhood principle envisaged under the law of tort to the requirement of a mortgagee owing the mortgagor a duty of care and other persons vitally affected by the mortgagee’s power of sale. The paper found among others, that although the neighbourhood concept as originally espoused was limited in terms of tort of negligence, however, due to the ‘proximity’ of relationship between the mortgagee and the mortgagor, the same neighbourhood level of care can be extended to cover a mortgagee’s duty to the mortgagor when executing the mortgagee’s power of sale. The paper recommended the inclusion of the neighbourhood concept on the standard of care required with respect to the exercise of the power of sale by a mortgagee in all mortgage documents.
Dr. Solomon O Afolabi. A critical examination of the application of the neighborhood principle to mortgagee’s duty to third parties in common law legal systems. Int J Law Justice Jurisprudence 2022;2(2):01-04.