RE: Legal Opinion regarding splitting of Deed of Mortgage and IGPA of the factory land and building of M/s Company 1, a client of Bank 1.
We refer to your letter no. ……………. dated 28-02-2007 on the above subject.
We had provided Bank 1 (“BANK 1”) a single deed of mortgage and a single IGPA. But, from perusal of your letter it appears that the local sub-registry office at Sreepur, Gazipur has asked the borrower, Company 1to split the Deed of Mortgage and IGPA in accordance with the sanction advices of the respective banks.
You have asked our legal opinion as to whether the suggestion of the sub-registry office is viable and whether it would hamper the interest of the Lenders (BANK 1 and Bank 2 (“BANK 2”)). If the interest of the Lenders will not be hampered then you have requested us to modify and split the deed of mortgage and IGPA.
There is no law prohibiting a mortgagor from creating a mortgage on its property in favour of two mortgagees under one mortgage deed to secure two loans. Hence it is questionable under which law, rules or regulations the Sub-Registrar of lands requires the Deed of Mortgage and Power of Attorney to be split.
Splitting the mortgages into two documents can be done. However there may be several issues to note in doing so:
1. The priority of a mortgage in accordance to law is on a “first come first serve basis”. Hence a prior mortgage will have senior priority over a subsequent mortgage. If both mortgages in favour of BANK 1 and BANK 2 are created together, then both mortgages will have the same priority. In any case, a security sharing agreement should be entered between the banks to obligate each of the bank to share the proceeds of enforcement in case of default by the borrower on a pari passu pro-rata basis.
2. As there appears to be no law, rule or regulation requiring the split of the mortgage and the power of attorney, in complying with the request of the Sub-Registrar the Banks will be setting a precedent for a deed of mortgage to cover only one loan, which is not a practice in the Sub-Registrar Offices in other part of Bangladesh. Moreover, this practice will be detrimental to future security documentation in favour of lenders in syndication, a club loan arrangement and other joint lending arrangements where mortgage is required to be taken as security which is required to be registered in that particular Sub-Registrar Office.
In view of the above, the Sub-Registrar Office of Gazipur should inform the Bank under which provision of law, rule and regulation they require the deed of mortgage to be splitted and if they are adamant with regard to having “a mortgage deed per lender”, for the matter be referred to the Inspector General of Registration.
However, if the Bank decides to split the deed of mortgage and IGPA, upon receiving your instruction to split, we will do the needful.
Should you have any query, do not hesitate to contact us.
For: “The Lawyers & Jurists”