Public comments are due by April 30 on a discussion paper released last year about whether the laws governing the enforcement of mortgage-securities over land should be reformed.
In the paper, the Law Reform Commission reviewed the need for potential changes to the foreclosure rules in Cayman at the request of the attorney general.
Following the 2008 financial crisis, an increase in the number of foreclosures and repossessions attracted much public criticism.
“The dominant theme of the public commentary has been the level of hardship, it is claimed, that has been experienced by the owners of residential property, who have been affected by these procedures,” the Law Reform Commission said.
The commission’s discussion paper noted that the number of foreclosures decreased significantly in recent years. There were 67 forced sales involving homes, businesses and land plots last year, compared with 116 in 2015. But the paper also stated that the law does not strike the best balance between the interests of lenders and borrowers and should be reformed.
Under current rules, there are no foreclosure statutes, even though the term is widely used colloquially. As a result, lenders cannot take possession of a mortgaged property before it is sold.
Lender rights are protected by creating a charge over the property under the Registered Land Law. The charge instrument is signed by the borrower, acknowledging that if terms of the loan agreement are not complied with, the lender has the right to force a sale.
The Law Reform Commission expressed doubt that typical borrowers are fully aware of the terms and that, therefore, the law might not provide the necessary safeguards.
The report also stated that enforcement notices could contain more information, for instance which steps a borrower should take to remedy a payment default.
While the law strikes a balance between lender and borrower rights, they do not have equal bargaining power. The only legal recourse for borrowers is often to take the lender to court, which in a financially distressed situation is very difficult.
The report further criticised that lenders tend to market a distressed property in a forced sale as ‘foreclosure’ or ‘bank sale’, which often depresses the value of the property even more.
If such a sale involved a third party, for instance an employee of a lender, the transaction, although legal, would “no doubt attract a very high degree of suspicion”, the report said.
In its public consultation, the Law Reform Commission asks more generally if any reform should be made by amending the Registered Land Law or by including foreclosure provisions in a wider consumer protection legislation.
The paper is available on the Law Reform Commission’s and the government’s website.
Submissions should be forwarded to the Director of the Law Reform Commission either electronically to [email protected] or in writing, by post or hand-delivered to 4th Floor Government Administration Building, Portfolio of Legal Affairs, 133 Elgin Avenue, George Town, Grand Cayman, P.O. Box 136, Grand Cayman KY1-9000.