Posts Tagged mortgage
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.
Since 24 September 2014 a mortgagee in Victoria has been required to take reasonable steps to verify the authority and identity of a mortgagor to ensure that the person executing the mortgage, or on whose behalf the mortgage is executed, as mortgagor is the same person who is the registered proprietor of the land that is the security for the payment of the debt.
See: s.87A(1) of the Transfer of Land Act 1958 which was inserted into the Act by the Transfer of Land Amendment Act 2014.
The purpose of the new provisions is to protect the owners of land against fraud.
If the Registrar is satisfied that the mortgagee did not take reasonable steps and the registered proprietor of the land did not grant the mortgage the Registrar may:
- if the mortgage has not been registered, refuse to register the mortgage; or
- if the mortgage has been registered remove the mortgage from the Register.
If the mortgage is removed from the Register the mortgagee no longer has an indefeasible interest in the mortgaged land and the mortgage is void. See: s.84A(5).
A mortgagee is considered to have taken reasonable steps taken to verify the authority and identity of a person executing a mortgage if it has taken steps consistent with any verification of identity and authority requirements:
- determined by the Registrar under s.106A; or
- set out in the ‘participation rules’ within the meaning of Electronic Conveyancing National Law (Vic).
The Registrar has not yet made a determination under s.106A.
The ‘participation rules’ refer to a face to face interview in the case of an individual and the sighting of identification documents such as a passport, birth certificate, Medicare card, drivers licence. See: schedule 8 “Verification of Identity Standard”. Where the mortgagor is a company confirmation of the existence and identity of the body corporate by a search of ASIC’s records must be undertaken together with reasonable steps to establish who is authorized to sign or witness the affixing of the common seal. The identity of the person affixing the common seal must also be verified. There are also provisions for the establishing the identify and powers of attorneys acting on behalf of mortgagors.
Mortgagees should establish procedures to ensure that they can comply with the new requirements and also maintain records for the purpose of being able to prove that they have complied with the new procedures. It would also be wise to obtain advice about what is required to comply with the new requirements.
There is a translation key(widget) on this blog for ease of reading for non-English speaking members of the public or professionals. http://roberthaybarrister.blogspot.com.au/
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.
My clerk can be contacted via this link for bookings http://www.greenslist.com.au/