LAWS205: Mortgages PDF

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MortgagesA mortgage is a security interest. It creates a personal interest (in relation to land), and an interest in land (Mortgagee wants to ensure property is protected so interest in land through mortgage. A registered mortgage has effect as security, but shall not operate as a transfer of the es...

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Mortgages A mortgage is a security interest. It creates a personal interest (in relation to land), and an interest in land (Mortgagee wants to ensure property is protected so interest in land through mortgage. A registered mortgage has effect as security, but shall not operate as a transfer of the estate or interest charged: Land Transfer Act 2017, s 99 (Land Transfer Act 1952, s 100). No foreclosure in NZ/Equity of Redemption Abolished. (PLA 2007, s117). S35 LTA: Mortgages will be in priority from time registered. Credit Contracts and Consumer Finance Act 2003 Credit Contracts and Consumer Finance Act 2003 (CCCFA 2003) s11: Consumer Credit Contracts Cambridge Clothing Co v Simpson [1988]: C was registered proprietor of property. After 2 years, S sells the property for $2.75M, sold for 3x purchase price. The mortgage was for 3 years, he couldn't repay early. S's lawyers wrote to C and said they wanted to repay early. C's lawyers had a delay in response, because legally he was required to pay interest for the full three years. Ended up agreeing on 6 months interest (about $7k). S asks DC to reopen the contract saying that having to pay any interest is oppressive. C appealed to the HC, and law was set out. HC held contract was not oppressive. Contract was entered into to advance business interests. Greenbank NZ Ltd v Haas [2000]: Transworld wanted to purchase block of land. Borrowed deposit from Greenbank, the loan was for 60 days, and large one off fee of $45k. But effective finance rate was 217%. Transworld was unable to pay for loan and purchase fell through. Greenbank ended up becoming the purchaser of the land. Loan transaction issue came about as Transworld saw the purchase as a business opportunity. In HC, H successfully argues that transactions were oppressive. G appealed to CoA and they said it was no oppressive, just because it is a high interest rate, does not mean it is oppressive. Question: Reopening of Whether the term is in accordance with "reasonable standards of commercial practice?" Oppressive Credit Robson v Shortt [2007]: Under the CCCFA 2003. S was a trustee of a company, R entered into agreement Contracts with S for $175k. R pays instalments over 25 years, and she will buy back property. R defaulted on payments from the outset, and suffered from early dementia. Company was approached by an agent acting for R, which is how se found S. S said termination was not oppressive. R's payments were not enough to cover what was due. Italia Holdings Ltd v Lonsdale Holdings Ltd [1984]: Agreement for Remuera Road sale fell through, so Tainui couldn't be purchased. SO they approached L for a loan for $120k. L provided loan on condition of purchasing two properties on Ranfurly Road. I agreed. Sections at Ranfurly were transferred to Italia. Money was due to be repaid in one year. After I had done this, they reflected on situation, and sought relief under old credit contracts act. Said they were required to pay a grossly inflated price, was oppressive under the act, and should reopen the contract. Italia claimed that L made a condition under the loan to do this. Court concluded that contract was no oppressive. Buxton v Roc Mac: Affirmed decision made in Greenbank. Any allegations of oppression must be supported by evidence. Court said that all circumstances relating to the making of the contract, exercise of the right or power and any inducement to enter into the contract must be. Mortgagor After the due date: s99. s97 still protects mortgagor, which means mortgagor is entitled to equity of redemption. However, in order to redeem property mortgagee must pay all amounts and perform all obligations at his or her expense. What are all the amounts? Times of Repayment

Harris v ANZ Banking Group: Court said it has got the power to examine all fees, expenses and amounts. Said fees were reasonable, which were reasonably incurred by the mortgagee.

Masefield Mall Ltd v Gasson Street Properties Ltd: Up to parties to have extended rights on redemption. Mortgagor can waive rights to statutory entitlement. Clogging Equity of Redemption Kreglinger: Lord Parker said you need to draw a distinction between two matters. First: Terms which directly clash with the equitable right to redeem (Terms in which the mortgagee gets a beneficial interest in the property). Second: Terms that don't directly affect the mortgagable property, but give a collateral advantage (financial return in some way which is over and above the principle interest they have agreed to). HoL held unanimously that the term of the mortgage was not a clog on the equity of redemption. Court held that because they looked at the agreement and agreed it was concluded by two separate transactions (Loan transaction, and option transaction). Was intended that transactions be independent of each other. Jones v Morgan: M borrowed money from J. Business proposition, with the idea to turn farm into nursing home. Three years later decided not to do nursing home, and to get permission for residential flats. Chadwick LJ: First charge was enough to be an equity of redemption, but whether three and a half years later, is there any difference there? Majority of CoA held it wasn't, it was still invalid. Held that new agreement was not independent of the original mortgage. Fact dependent. What is a clog, what is not?

Samuel v Jarrah: Mortgage was over stock, S advanced money to J and gave them a mortgage (benture) as security over the stock of the company. One terms of the mortgage was the S should have the option to purchase the whole or any part of the stock at 40% of the price over the 12 months. J sought to repay the advance within 12 months. J argued that it was void. HoL agreed. Options to Purchase

If the option is independent of the mortgage that it predates it, it won't be. Bannerman v Murray: CoA said option must be regarded as a term of the mortgage. Did talk about every situation like this not being a clog. Canterbury Finance v Sagar: Option independent of the purchase will not be a clog or fetter. Esso Collateral Advantages: Where a term give a mortgagee an advantage over and above the repayment of the loan and interest. Kreglinger is the leading case. Lord Parker judgement, Unconscionable

Restraint of Trade

Multiservice Bookbinding v Marden: If it is merely reasonable that is not enough. Small and prosperous, needed a bigger premises. Multiservice did not have to accept the terms. Bargain may have been reasonable, but it was not unconscionable. Reasonable is not enough. Excessive Premium: premium may be justified, only where it is excessive it can be oppressive and unconscionable. Cityland v Dabrah: Clog or fetter on the equity of redemption.

Under the PLA s97 and s98(2): A mortgagor may redeem mortgaged property but is liable to pay the interest for the unexpired term. S50: Only applied to consumer credit contracts. Another ability we have to ensure there is no clog or fetter on the equity of redemption. The Mortgagee A mortgage is both a personal covenant and a charge over the land. Form, Contents, Date Notice must be given in the prescribed form, provided any variation adequately informs the mortgagor of: 1. The default complained of; 2. The action required to remedy the default; 3. The date by which the mortgagor must remedy the default; and 4. The rights the mortgagee will be entitled to exercise if the default is not remedied within the stated period. Purpose of s119 notice is to give mortgagor opportunity to avoid realisation of security Proceeds of sale were insufficient. B argued that the bank had not issued a valid s199 notice. In HC Bank was successful, so B appealed. First argument: Notice did not adequately inform him of the action required to remedy the fault. CoA held that if a default needs to be remedied by a fault of money, it should be specified TSB Bank v Burgess in the notice. It wasn't here. But, it doesn't mean that the notice is invalid. Need to look at the facts of the situation as a matter of degree. Held, the amount, nature and extent of the default was included, and that B knew the amount in arrears and couldn't argue that he hadn't tried to pay any of the amounts. Error was in the date. The notice had been prepared at the end of 1999. B held that notice was invalid. Court held that notice was not invalid. CoA what matters is whether a reasonable recipient would have understood. Bryers v Harts Just a simple getting years muddled up mistake. Exercise of the Mortgagee’s Power of Sale Agio Trustees v Harts High end value property, first mortgage to Hart, but A defaulted under mortgage. Mr T (from mortgagee) suggested that he should use Mrs C to be real estate agent. C was T's partner. Was dispute abot whether it was known. Found that A was cohersed to use C. Mr K of Agio was an experienced property trader, he hadn't heard of C before. Evidence from other agents that C was not known for selling high end property. Unsuccessful attempts to sell property. Mr Earwaker was sales manager of real estate agent that's tryig to sell the property (Who C works for). He made offer of $1.2M, but wasn't accepted by A, so no sale. H exercised power of sale, and decided to use Realty Solutions. Week later they got offer in of $1.3M from a third party, but prior to that the company had already agreed to sell to Mr E. Agio claimed that H breached s103A of PLA

Coltart v Lepionka

1952, and also a breach in good faith. O'Reagan J in HC held that just by selling to Mr R was not a breach in the duty of good faith. However, their is a heavier onus on you to discharge the burden, and Judge found they had not discharged their duty, so was liable for a breach of duty. Two aspects: Close relationship, and did the mortgagee act for a proper purpose? GLW group purchased property in Hawkes Bay to subdivide. While subdividing, GLW granted C (architect) to purchase homestead lot, and lodged caveats to protect interest in the property. Subdivision was never completed, they defaulted under the mortgage. Westpac was going to take over ownership of property. Lepionka formed, to purchase Westpac mortgage. New mortgagee cancelled Mr C's option to purchase. L wanted C's caveats removed so went to HC. CoA held that mortgagee was in breach of it's duty to C.

Secure Financial Services v Davidson Apple Fields v Damesh Holdings Legal Principles The mortgagee has the right to decide when to sell, taking into account its own interests. However, it becomes subject to s176 duty as soon as it decides to sell. Only time a mortgagee might be penalised is if there is an excessive delay. Apple Fields To determine whether the duty has been complied with, the facts must be considered broadly and realistically. Apple Fields approved approach in Cuckmere (wrong side of the line). Its the time of sale that is the time for determining whether the prise is best reasonably obtainable. Mortgagee can decide when to sell, but when it sells it is the time the property is sold as to whether it is the best price reasonably obtainable. The statutory obligation to take reasonable care to obtain the best price reasonably obtainable. Apple Fields: What determines reasonable care will always turn on the facts of the case. No general rule that a mortgagee that has decided to sell has to market the property over a long period of time. Do not substitute other words such as "true market value" for the phrase "best price reasonable obtainable" it is clear. Always use words of the statute. In determining best price reasonably obtainable" regard must be had to the purpose of s176. If sale price is too low, there is a heavy reliance on the mortgagor, and debt will impact on future mortgagees. A property sold at a mortgagee sale will not get as high a price as one sold in a sale by an owner who is not under any financial pressure to sell. Special considerations apply when a mortgagee wishes to sell to a party in which the mortgagee has an interest. As a general rule the remedy for a breach of the s176 duty is to set aside the sale of the property. However, if this remedy is inequitable, damages will be awarded. CCCFA: Sale Under Conduct of Registrar of HC Delay: Sale must be one month from mortgagees application. (s190(1)(b) PLA 2007) Expensive: Registrars costs, costs about $1500. (s194, PLA 2007). Governed by HC's fee regulations. Disadvantages Before agreeing to conduct a mortgagee sale, the has to have complied with obligations under Part 3. s187 gives permission to the registrar to conduct that sale. Sale Through Court Competing InterestsMortgagee and Caveator Harris v ANZ Edgewater Motel Ltd v CIR

Court can make orders set out in s200(3), but must say there is default which has no been remedied. Vesting of Land Zambuto v Kensington Park Holdings: Caveat must be lodged after date of mortgage. Interest claimed must be under an unregistered mortgage or agreement to mortgage. Unregistered mortgage or agreement to mortgage must be dater LATER than the mortgage, Application of Proceeds of Sale “Reasonably incurred.”

Consumer Credit Contracts and Parallel Jurisdiction Focus is on consumer, rather than business credit. Form of consumer protection. 2014 amendment made under CCCF amendment act. Purposes now include: S3: Creditors under this act must be responsible lenders. Must disclose adequate information.

Rules about charges and fees. Consumers can seek reasonable changes to consumer credit contract on grounds of unforeseen hardship. F was a company owned by Mr and Mrs Morely. Owned a successful dairy farm. Farm was financed with loans from ANZ, F entered into agreement for sle and purchase of neighbouring dairy farm, plus the Fonterra shares ($7M). Agreement was conditional upon F obtaining finance within 7 days, had to sell a 57ha block of land to help finance the purchase. Solicitor for F rang ANZ and said what if 57ha doesn't sell? Evidence was that if it did not sell, bank would probably cover the loan anyway (didn't put in writing). Banks evidence is that it might have said that, but no assurance that it would do that. Market for dairy farms fell, Fonterra Forevimor v ANZ shares fell in price, decline in Fonterra milk pay out projection. F ended up having to sell whole farm, ANZ failed to give additional funds. F issued proceedings: 1. Breach of provisions of Code of Banking Practice. 2. Breach of Fiduciary Duty. HC found that ANZ did not owe any Fiduciary duty to F. On the basis that F had its own financial and legal advisors. Couple and BNZ were victims of fraud. Thought Mr C, F applied to the bank for a loan to purchase two houses. C applied on behalf with signed applications. Bank thought F's were going to finance by selling two properties they already owned. Mr C had forget sale and purchase agreements. Forged sale and purchase, and were unaware of this. F's had no intention of selling properties, just to buy another two. Properties they planned to purchase were owned by Mr C's company. Deposits were never paid, F's said they didn't even Fortes v BNZ think about it, Mr C did not ask about it. Mr C provided to the bank valuations, but was not independent, met the lending criteria. Bank said they would have met the family criteria even if other home were forged. Bank officer never met with F's in person, didn't scrutinise valuations at all, didn't carry out his role sufficiently....