Topic 5 - Mortgages PDF

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Mortgages. Lectured by Maria Abertos...

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Saturday, 2 November 2019

Topic 5 - Mortgages What is a mortgage?!

- “A mortgage is a conveyance of land or an assignment of chattels as a security for the payment of a debt or the discharge of some other obligations for which it is given. This is the idea of a mortgage, and the security is redeemable on the payment or discharge of such debt or obligation, any provision to the contrary notwithstanding.”! Lindley MR in Santley v Wilde [1899] !

- OS land equitable entitlements:! • Equity of redemption! - Mortgagor not intending to convey all interests, but only to secure a loan! - Arises automatically, upon creation of mortgage! • Equitable right to redeem - Right to re-conveyance upon payment of what was loaned ! - Lost when: ! • Upon sale! • Foreclosure ! Old system mortgages!

- Conveyance of the legal fee simple to the mortgage, with the mortgagor acquiring an equity of redemption!

- Attached right of possession (transfer of title)! - There can only be one legal mortgage of OS land.! - Subsequent mortgages are equitable! - Granted when:! - LEGAL MORTGAGE: Deed as per s 23B CA ! - EQUITABLE MORTGAGE: In writing s 23C; deposit of title deeds (Theodore v Mistford); agreement to grant specifically enforceable mortgage!

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Torrens system mortgages!

- Operates as a statutory charge (s 57) RPA! - S 57(1) A mortgage, charge or covenant charge under this Act has effect as a security but does not operate as a transfer of the land mortgaged or charged.!

- Legal title remains with the mortgagor! - Can have multiple legal mortgages! - Granted when:! - LEGAL MORTGAGE: Registered under s 57 ! - EQUITABLE MORTGAGE: In writing s 23C; deposit of title deeds (Theodore v Mistford); agreement to grant specifically enforceable mortgage!

- Equitable right of redemption applies! - S 56(1) RPA! - Whenever any land or estate or interest in land under the provisions of this Act is intended to be charged with, or made security for, the payment of a debt, the proprietor shall execute a mortgage in the approved form.!

MORTGAGES AND INDEFEASIBILITY!

- Registered mortgages have indefeasibility under s 42(1).! - Exceptions to indefeasibility also apply! - In cases of mortgages, usually fraud in cases where a mortgagor forges signature for mortgage, bank subsequently registers (indefeasible). BUT, must bring home to RP of mortgage (bank). Bank was not fraudulent??!

- Courts will consider the conduct of the bank in asking questions, etc.! - AUSTRALIAN GUARANTEE CORPORATION LTD V DE JAGER [1984] ! - Facts: Mr De Jager wanted mortgage, Mrs DJ didnt. Mr DJ forged signature, brought to solicitor who brought to bank. Solicitor attested that he witnessed. Mr DJ ran with money. AGC (bank) tried to assert.!

- Issue: Would AGC’s acts of falsely acknowledging witness amount to fraud?!

- Held: Fraudulent to make representation to RG that you know is untrue. AGC should have made more enquiries.! 2

Saturday, 2 November 2019 S 56C RPA

- (1) Mortgagee must confirm identity of mortgagor before presenting a mortgage for lodgment under this Act, the mortgagee must take reasonable steps to ensure that the person who executed the mortgage, or on whose behalf the mortgage was executed, as mortgagor is the same person who is, or is to become, the registered proprietor of the land that is security for the payment of the debt to which the mortgage relates.!

- (2) Without limiting the generality of subsection (1), the mortgagee is to be considered as having taken reasonable steps to ensure the identity of the mortgagor under subsection (1) if the mortgagee has taken the steps prescribed by the conveyancing rules.!

- The Conveyancing Rules (cf Real Property Regulations 2014 (NSW):! - Mortgagee must have full name, date of birth, address! - Mortgagee must verify the information through identification documents. ! - If Mortgagee fails to comply with s 56C, their mortgage interest is removed, and compensation for damages forfeited (s 129(2)(j))! Scope of indefeasibility

- Will Indefeasibility will also extend to provisions in the mortgage agreement (actual contract)? !

- e.g. Personal Covenant to repay debt! - If mortgage payments not met, mortgagee has right to sell. If sale price not enough to cover loan, they can sue for remaining amount!

- If not, the mortgagee is able to exercise their power of sale to recoup a part of their loss, but cannot sue on the personal covenant to repay to obtain the balance.! All moneys mortgages

- Stipulates mortgage interest over loans leant in the future! - e.g. initial loan of 1M, subsequent loan of 500k! - 500k mortgage doesn’t have to be registered, to save hassle! - Does registering mortgage give indefeasibility over all subsequent mortgages?! - PROVIDENT CAPITAL LTD V PRINTY [2008] NSWCA 131 !

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- Unless covenant to repay has been incorporated into the registered mortgage, the obligation to repay is found only in a collateral document. ! Importance of language

- VAN DEN HEUVEL V PERPETUAL TRUSTEES VICTORIA LTD ! - Facts: ! - A wife’s signature was forged by her husband on a mortgage. The lender sought possession of the home, and the wife sought relief. !

- Issue: ! - Did indefeasibility attach to the loan document?! - Mortgage said: ! - The registered mortgage was expressed to be security for payment to Perpetual of “the Secured Money”.!

- “Secured Money” was defined to mean all moneys payable or contingently owing to Perpetual under a “secured agreement”.!

- “Secured Agreement” was defined to mean: Any present or future agreement between me or us, or any one of us, and You, or An agreement which varies such an agreement.!

- Held: ! - Mortgage binding! - Parties willing to be bound where only one party agrees. i.e. wording gave effect to mortgage!

- PERPETUAL TRUSTEES V ENGLISH - Facts: - Husband and wife, husband purported to sign wife’s signature on two documents: a memorandum of mortgage (to be registered) and a loan offer which stated the amount to be lent, and the terms of the loan.$!

- There, the loan offer was made to both, and the acceptance stated:! - To accept this Offer You and, if there is more than one person, all of You, must sign and return……..!

- Held:! - Loan document not binding, as consideration not given by both parties.! 4

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RIGHTS AND REMEDIES OF THE MORTGAGEE Foreclosure (not in exam)

- The effect of the order for foreclosure is to vest the ownership and title to the land in the mortgagee. The equitable estate of the mortgagor is forfeited and transferred to the mortgagee. !

- The mortgagee takes the property in full satisfaction of the mortgage debt so that the right to recover the mortgage debt from the mortgagor is extinguished. !

- The collateral securities are released and the mortgagor’s right to redeem is extinguished. !

Power of Sale ! Allows the mortgagee to sell property if mortgagor defaults!

- IMPLIED POWER IN ALL MORTGAGES: s 109(1)(a) CA! - s 111(1): in the case of a registered Torrens mortgage, the power of sale must be exercised in accordance with ss 57, 58 and 58A RPA!

- TO EXERCISE POWER OF SALE, THERE MUST BE: ! - A default (per s 57(2)(b)); and! - A notice has been issued to the Mortgagee specifying the default and requiring it to be remedied within a month (57(3)); and!

- A failure by the Mortgagor to remedy the default! - STANDARD OF CARE WHEN EXERCISING POWER OF SALE! - Good faith:! - Must act in good conscience ! - Pendlebury v The Colonial Mutual Life Assurance Society - P defaulted. Land was worth 2000 GBP. sold for 720GBP Land was in rural Victoria CM only advertised in Melbourne newspapers. Only spent 2 GBP. Ad did not specify location. Court held CM did not act in g. faith.!

- Reasonable Care:! - Must take reasonable care to obtain the market price for the property! - Cuckmere Brick Co Ltd v Mutual Finance Ltd

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- Facts: ! - C obtained mortgage from MF to build 100 flats. Decides to build 35 instead. C defaulted. CM exercised power of sale.!

- Sold for 44k GBP. Alleged to be valued much higher.! - Ad for sale only noted approval to build houses, not flats (would have attracted more buyers)!

- Held:! - Mortgagees breached duty to take reasonable care! - Duty to obtain proper market value upon decision to sell! - CM liable for negligence, and to pay damages for loss! - S 111A CA (Duties of Mortgagee) - (1) A$mortgagee$or$chargee, in exercising a power of$sale$in respect of mortgaged$or$charged land, must take reasonable care to ensure that the$land is sold for:!

- a) if the$land has an ascertainable market value when it is sold-not less than its market value, or!

- b) in any other case-the best price that may reasonably be obtained in the circumstances!

- (4)….a person who suffers loss or$damage $as a result of the breach of the duty has a remedy in$damages against the mortgagee.!

Conduct of the power of sale! Advertising

- Pendlebury v The Colonial Mutual Life Assurance Society - P defaulted. Land was worth 2000 GBP. sold for 720GBP Land was in rural Victoria CM only advertised in Melbourne newspapers. Only spent 2 GBP. Ad did not specify location. Court held CM did not act in g. faith.! Valuation

- Hiring a professional valuer will demonstrate good faith, as it allow mortgagee to compare offers (Pendlebury)

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Saturday, 2 November 2019 Timing of sale

- Freedom to wait ! - Mortgagee does not have to sell immediately. (Pendlebury)! Improvements

- Mortgagee can only spend and then claim from mortgagor on necessary improvements (Southwell v Roberts)!

- Those that a prudent mortgagee would have done to increase value! - e.g. broken windows, etc.! - Southwell v Roberts! - R defaulted. Dilapidated house in need of improvements for 200. S spend 1600 (bulldozed, constructed new flats). Spending not reasonable, out of proportion. Court did not allow S to claim extra 1600 from R Duty to inform the Mortgagor of the terms of sale - Keeping mortgagor in the loop demonstrates good faith (ANZ v Bangadilly)! Mortgagee selling to self, or related entity

- Cannot sell to self (ANZ v Bangadilly)! - However, mortgagee sold to employee, after exhausting all options of sale multiple auctions, etc. Employee also paid exact market value (Sewell v WA)

ANZ Banking Group Ltd v Bangadilly Pastoral Co Pty Ltd (1978) 139 CLR 195! Facts: !

- Hall Investments wanted to buy property from Talga. Property subject to 2 mortgages (mortgage 1, ANZ mortgage). Talga unable to sell. Hall Investments arranged for their other company (Halco) to take over mortgage 1. Exercised power of sale, sold to their company Bangadilly.! Issue:!

- Valid power of sale?! - Auction takes place 23rd December, max price fixed by same persons who paid, price was substantially lower than max price. Sold at a loss of 15000. No advertising!

- ANZ, as 2nd mortgage holder, contested sale! 7

Saturday, 2 November 2019 Held: !

- Per Aickin J (at 227): “One of the critical questions here is whether there ever was an$ independent bargain.”!

Mortgagor’s role in conduct of power of sale! Onus: !

- Onus is on the mortgagor to establish that there has been a breach of duty. ! If there is a breach: !

- Mortgagor is entitled to damages under s 111(4). The measure of loss that the mortgagor would be able to obtain, will be the difference between the price actually obtained and the price that would have been obtained if the breach had not occurred ! Injunction to stop sale on bases of improper exercise

- Can the Mortgagor get an injunction to stop the sale if the power is being exercised improperly? !

- This depends on the stage of the transaction: per Forsyth v Blundell - If exchange of contract, but no settlement and mortgagor demonstrates impropriety in exercise of power of sale, then court will grant injunction.!

- If contract has been completed: an injunction will be available and the sale will be set aside if at any time up until completion the purchaser had received notice of the mortgagee’s impropriety in exercising the power of sale. !

- If contract has been completed and the purchaser has no notice of the mortgagee’s impropriety then the bona fide purchaser defence applies (s 43A(1)). ! Forsyth v Blundell (1973) 129 CLR 477 Facts:!

- B defaulted to mortgage over petrol station. Bank exercised power of sale. Auction arranged with reserve of 120k. Before auction date, XL petroleum expressed INTEREST in bidding up to 150k. Forsyth, on behalf of Shell offered 120k. Sold to F for 120k.! Held: !

- The mortgagee had not exercised its power of sale in good faith. Indifference to interests of mortgagor - could have had a better sale price.! 8

Saturday, 2 November 2019

PRIORITIES AND TACKING Priorities!

- Resolved on same lines as general competing interests! - Under Torrens, priority calculated on basis of first registration! - However, parties under s 56 can agree to alter the order of priorities. ! Tacking!

- Some mortgages will contain a provision which allows the mortgagee to advance further funds and to ‘tack’ those funds onto an existing mortgage. !

- The purpose of these provisions is for the lender to maintain their priority for the full sum, rather than having different ranking security interests. !

- Whether the lender/mortgagee is entitled to tack a further advance onto an existing mortgage will depend upon whether there are any additional mortgages over the property, and whether the first ranking mortgagee has notice of those mortgages at the time that the further advance is made. !

- e.g. if your father agrees to lend 1m with possible 500k at a later date. then you go mother to get 1m. Father then agrees to lend the 500k. Who gets priority?! Old System

- The legal mortgagee is entitled to tack on to their mortgage so long as they have no notice of later mortgagees (Hopkinson v Rolt)!

- Question of fairness and justice: will it be a fair outcome?! - Permitted to tack when first mortgage has no notice, at the time of advance.! - If notice exists, advance is postponed to 2nd mortgage! Torrens

- The rule in$Hopkinson v!Rolt$applies equally to Torrens Title mortgages.$! - Central Registry of Australia v!Donemore! - The effect of a caveat?! - Unregistered, but caveated mortgagee: must demonstrate that first mortgagee had ACTUAL notice of the caveat !

- i.e. Must ‘seek consent’ of first mortgagee (put them on notice).! 9

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- First mortgagees not expected to search register before every advance! - The position of building mortgages (Matzner v!Clyde)$! - Even though first mortgagee given actual notice of subsequent mortgages, if they are OBLIGATED UNDER CONTRACT to provide advances, they will have priority.!

- Matzner v Clyde Securities Ltd [1975] 2 NSWLR 293! - Facts: ! - Tooronga Investments (the mortgagor) was building three blocks of home units. It granted several mortgages: !

- First, to Clyde Securities, for $273,600 (on 13 April). Clyde was obligated to pay additional advances as the building proceeded, until the full amount was given or such lesser amount as was required to complete the buildings was paid. !

- Second, to Matzner, for $10,000 – was aware of the first mortgage. This mortgage was consented to by Clyde. At this point, Clyde had advanced $249,000.$ !

- Third, to another mortgagee, for $30,000 - was aware of the first mortgage. This mortgage was consented to by Clyde. At this point, Clyde had advanced $252,000. !

- Issue: ! - Will the subsequent portages take priority over the advances, even if there were consent?!

- Held: ! - Holland J: Clyde was entitled to priority for the further advances made under its mortgage!

- CONTINGENT ON MORTGAGE BEING A BUILDING MORTGAGE

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