Homeowners Protection Act ' Time To Revisit

In 2017 The Bahamas enacted the Homeowners Protection Act (HPA). The legislation was touted as "groundbreaking" and was designed to provide "meaningful protection to homeowners by ensuring a true and proper discourse" between borrowers and financial institutions (hereinafter 'lenders') 1 . As a result of COVID-19 and its adverse impact on the Bahamian economy, increased litigation under the HPA is expected. The HPA will likely become the epicentre of the mortgage market.

Previous state of law

Prior to the enactment of the HPA, lenders would often require borrowers to waive their protection under the Conveyancing and Law of Property Act (CLPA) as a condition for a mortgage. Consequently, when borrowers became delinquent, lenders could expedite the process to enforce their security with little to no impediments.

The previous state of affairs gave lenders inequitable power which necessitated reform. Although the HPA addresses the inequities of the old regime, it also pushes the pendulum of justice unevenly in favour of borrowers, thereby creating a new imbalance on the proverbial scales of justice.

Current state of law

The HPA introduces the following onerous and notable features: 2

• Lenders must give specific notice to borrowers before commencing litigation to enforce their security 3 and before exercising a non-judicial power of sale. 4
• Borrowers and their immediate family members that contribute to mortgage payments may approach the court for relief to prevent the enforcement of a lender's security. 5
• Lenders are under a duty of fair dealing 6 and directors, employees and their relatives may not purchase foreclosed property. 7
• Foreclosed property must be sold at market value and lenders can accept the highest bid only after six months. 8
• If an order is made to postpone a sale by a lender, no further sum will be payable under the mortgage unless the court orders otherwise. 9
• Under certain circumstances, lenders cannot obtain a deficiency judgment once they have exercised their power of sale. 10
• A violation of the HPA will result in penalties of up to B$200,000 for lenders and up to B$100,000 for directors 11 in addition to administrative penalties from regulators. 12

Recently, the Supreme Court ruled that the HPA had to be strictly complied with before a lender could recover possession of a foreclosed property (13) In that case, the court dismissed an action commenced by a lender to enforce its security for non-compliance with the HPA.