Archive for category Mortgages
There have been many cases about whether a mortgage procured by fraud secured any money in circumstances where the mortgagee is innocent of the fraud. The latest case is Perpetual Trustees Victoria Limited v Xiao Hui Ying  VSC 21 (Ying) where Hargrave J refused to follow the Victorian decision of Solak v Bank of Western Australia  VSC 82.
There is no question that a lender mortgagee has an indefeasible mortgage when registered provided the mortgagee is not involved in the fraud. The question is whether any amount is secured?
In NSW and Victoria the issue has been resolved by determining whether the payment covenant in the forged collateral agreement is incorporated into the registered mortgage.
In Ying the mortgage incorporated a memorandum of common provisions which contained a covenant for payment by reference to any amounts owing under any other agreement between the mortgagor and the lender. The other agreements were also forged.
The thrust of the NSW decisions is that, where the loan agreement on which the lender relies is forged and therefore void, there is no “secured agreement” and therefore no “secured money” within the meaning of the payment covenant in the mortgage. See: Perpetual Trustees Victoria v English  NSWCA 32. The same logic has been applied where the loan agreement (but not the mortgage) is forged. See: Perpetual Trustees Victoria Ltd v Cox  NSWCA 328. In Solak Pagone J reached a contrary conclusion to the NSW courts. In Solak the mortgage and the loan agreement were forged. Pagone J distinguished the NSW cases on the basis that the mortgage, memorandum of common provisions and loan agreements all defined the mortgagor/borrower as ”You” and “You” was in each case the forger purporting to be Mr Solak. The mortgage was therefore effective as a security.
In Ying Hargrave J disagreed with Solak and followed the NSW decisions. His Honour said that Solak was “plainly wrong” and that there was nothing secured by the mortgage in Solak because there could be no amount owing under a forged loan agreement and there was also nothing secured by the mortgage in Ying. In Ying the plaintiff mortgagee was ultimately successful on the ground that the mortgagor held the mortgaged land on trust for the forger (the husband of the mortgagor) and that the mortgagee was entitled to have the value of the mortgaged land applied to partial repayment of its loans.
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Defaulting mortgagor borrowers defending court proceedings by the mortgagee lender often allege that the lender owed them a duty to investigate their income and assets and liabilities to determine whether the loan could be serviced. The legal basis for such a claim was recently rejected by the Supreme Court of New South Wales in Westpac Banking Corporation v Diagne  NSWSC 822.
Among the many claims made by the defaulting mortgagor borrowers was that the lender had a duty to “[prudently investigate the income, assets and liabilities of [the borrowers] and the proposed business plan of [the borrowers] in order to determine serviceability” and “[t]o take reasonable remedial action when the loans fell into arrears, including investigating the causes of the arrears, working with [the borrowers] to remedy the problems identified and continuing to monitor the ability of the borrowers and guarantors to adequately service the facilities”. Included in the alleged duty was a duty “to appropriately set and alter limits on overdraft facilities”.
Ball J rejected the borrower’s claims. His Honour applied Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd  AC 80 and held that the lender did not have a duty of care to investigate the borrower’s circumstances to determine whether the loan that was made was appropriate for them.
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Bill Stark has posted an interesting article on his blog about a case concerning a defaulting mortgagor’s last minute unsuccessful attempt to prevent the sale of the mortgaged land. See: Melbourne Property Law Blog. Attempts by mortgagors to prevent sales proceeding are rarely successful and the price for an injunction preventing a sale proceeding is usually payment of the amount owing into court. In the case analysed by Bill (Pearl Beach Property Administration Pty Ltd v Wisewoulds Nominees Limited  VSC 113) the mortgagee advertised the property for sale at an auction with an expected price range of $3,900,00 – $4,200,000. The day before the auction the borrower “sold” the land for $5,000,000; however, the mortgagee did not consent to the proposed sale preferring to go to auction. The borrower sought an injunction on the day of the auction alleging that the mortgagee had breached its duty to act “in good faith and having regard to the interests of the mortgagor” under s.77(1) of the Transfer of Land Act 1958 and/or its obligations to the mortgagor under s.420A of the Corporations Act. The alleged bad faith was the mortgagee marketing the property for sale in a price range that was less than the valuation of $4,800,000 allegedly obtained by it. Despite the mortgagee not appearing at the hearing of the injunction the injunction was refused. Justice Dixon held at  that “It was not properly open to infer a want of good faith or want of reasonable care in the conduct of the proposed sale from the fact that the property has been advertised as available within a range that is below the sworn valuation”. His Honour said that under quoting did not mean that the property was likely to be sold at an undervalue at auction. There is authority that a mortgagee is not bound to withdraw a property from auction merely because private offers are made See: Southern Goldfields Ltd v General Credits Ltd (1991) 4 WAR 138. See also Qorum Pty Ltd v Younger (1995) NSW Conv R 55-738 (BC9504362). While it is usual for a mortgagee to sell mortgaged property by auction it is not a breach of duty by the mortgagee if property is sold by private contract. See: s77(1) of the TLA. However, where land is sold by private contract it is desirable for the mortgagee to obtain one or more estimates of the value of the mortgaged property from competent estate agents. See: Croft and Hay The Mortgagee’s Power of Sale, 2012, para 6.2. It is not a breach of duty merely because land is sold by private contract without advertising: the question is always whether the land sold in good faith and for a fair price. See: Vasiliou v Westpac Banking Corporation (2007 19 VR 229. The critical issue is the price obtained and not the presence or absence of advertising. See: Vasiliou at . A mortgagee may also not be acting in bad faith by proceeding with an auction despite the existence of a lucrative offer for private sale if there is no evidence that the purchaser will be able to perform its obligations under the contract. See: Esanda Finance Corporation Ltd v C Conti (unreported, Supreme Court of Queensland, 15 January 1993, BC9303066).
There is a translation key (widget) on the mirrored blog for ease of reading for non-English speaking members of the public or professionals. The mirrored blog can be found at http://roberthaybarrister.blogspot.com.au/
Section 76(1) of the Transfer of Land Act 1958 sets out the procedure to be followed by a mortgagee in the case of default in payment of moneys secured by a mortgage. Section 76(1) provides that the mortgagee may in the event of default to serve a “notice in writing to pay the money owing or to perform and observe the covenants (as the case may be)”.
The notice must be served if the mortgagee intends to sell the mortgaged land. See: s.77(1).
In Whild v GE Solutions Ltd  VSC 212 Croft J considered what should be contained in a notice served under s.76(1). His Honour dealt at length with a contention that a notice given under s 76 was invalid because it contained an overstatement of the amount owed. His Honour drew a distinction between the requirements of the New South Wales provisions and s 76(1). His Honour said:
 At the outset, in considering the authorities, it should be noted that the provisions of s 57 of the New South Wales Real Property Act 1900, provisions which regulate the exercise of the mortgagee’s power of sale of registered mortgages of Torrens system land in that State, require, specifically, that the mortgagee brings to the attention of the mortgagor the particular default which the mortgagee alleges has occurred. Additionally, these provisions require that the notice specify that it is a notice pursuant to s 57(2)(b) of the Real Property Act 1900. Thus, the provisions of the corresponding Victorian provisions, s 76 of the TLA, are in marked contrast to the more detailed and prescriptive provisions of s 57 of the New South Wales legislation. Section 76(1) of the TLA requires “notice in writing to pay the money owing or to perform and observe the convenants (as the case may be)”. It should also be noted that there is no provision in the Victorian legislation providing for a mortgagee’s statutory power of sale and its exercise, under ss 76 and 77 of the TLA with respect to Torrens title land, which requires the notice to specify that it is a notice to pay under these provisions. Nevertheless, for reasons which are discussed further below, I do not regard the absence of an express requirement of this kind as decisive with respect to the form and content of such a notice in Victoria.
At  His Honour described the form of a valid notice under s.76(1):
Although it is the position that the Victorian legislation, ss76 and 77 of the TLA, does not specify the form or contents required of a default notice, its provisions do, nevertheless, contemplate that something in the nature of a “notice” (whether styled as a notice or demand) must be served on the mortgagor.As the High Court indicated in Barns v Queensland National Bank Ltd,the object of the notice is to guard the rights of the mortgagor. In my opinion, it follows that the “writing” constituting the notice must make it clear that its purpose is not merely to provide information, but that, rather, the mortgagee is taking a step which may result in the exercise of the statutory power of sale under the TLA and that, if the mortgagor wishes to prevent this course being taken, then action needs to be taken to attend to compliance with the notice. This may involve communication with the mortgagee to establish the quantum of any amount or amounts claimed with respect to the default or defaults specified in the notice and, if necessary, the taking of proceedings to enjoin the mortgagee from taking any further steps. Clearly, the exercise of the mortgagee’s power of sale is a very drastic remedy; it is a remedy involving a process of notification and execution which significantly affects, or has the potential to significantly affect, the rights of the mortgagor with respect to his, her or its property the subject of the mortgage. Consequently, although the Victorian legislation does not contain some of the specific requirements with respect to default notices as are contained in s57 of the Real Property Act 1900 of New South Wales, it is implicit in the Victorian provisions that a notice given under sub-s 76(1) of the TLA be drawn as a “notice” (whether styled as a notice or demand) which meets the objective of guarding the mortgagor’s rights by providing a clear indication, and thereby a warning, of the course upon which the mortgagee is embarking.
(citations removed and italics added)
His Honour undertook an extensive review of the authorities and concluded that a notice under s 76 would not necessarily be bad because a greater sum was demanded than was payable. He held that the position might be different if the notice was, in all the circumstances, misleading. Croft J concluded:
 In my opinion, on the basis of Websdale, Bunbury and the other authorities to which reference has been made, it is clear that a notice which correctly identifies the event of default relied upon but which overstates the amount owed is, nevertheless, valid for the purposes of the TLA provisions.
 For these reasons, I find that the notice of default with respect to Loan A overstated the amount owing but did, nevertheless, correctly identify the event of default upon which it relied and did not rely upon any non-default in the relevant sense. Accordingly, the notice of default was valid and the Tribunal was in error in finding that this notice was invalid.
His Honour’s reasoning was applied recently by Judd J in Equity-One Mortgage Fund Limited v Stoyanov and another  VSC 70 where his Honour rejected a claim that a notice given under s.76(1) was invalid on the ground of ambiguity because it overstated the amount that was owed.
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A new Australian edition of Fisher & Lightwood’s Law of Mortgage has just been published by LexisNexis. This is the third Australian edition of the classic English text. The authors of the three Australian editions have been Professor E.Tyler, the Honourable Justice Peter Young and the Honourable Justice Clyde Croft. The first English edition (called Fisher on Mortgages) was published in 1856. There have been 13 English editions. The Australian editions are particularly useful because the English editions do not deal with the Torrens system. The third Australian edition deals with the significant changes made to personal property securities by the Personal Property Securities Act 2009 (Cth). The chapter on the PPSA was written by Clare Langford, the NSW Supreme Court Equity Researcher. This text is a significant resource for any person practising in property law.
The latest edition of The Mortgagee’s Power of Sale has been published. Now in its third edition this book started life in 1980. The book is primarily written for practitioners and the text is arranged, as far as possible, in the same chronological order as the steps a mortgagee may take in selling mortgaged property under the power of sale. Clyde Croft (now Justice Croft of the Supreme Court of Victoria) was the sole author of the first edition and is a co-author of the third edition with Robert Hay. The Chief Justice of the Supremce Court of Victoria, the Honourable Marilyn Warren AC has kindly written the foreword. A formal launch for the book is likely to be held in late January 2013.