Week 11- Q1 - Week 11 - Q1 Question and Answers PDF

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Tutorial Week 11 – MortgagesOld System Mortgage p 74 Torrens Mortgage Clogs on the Equity of Redemption p 75Relationship Debt and Mortgages p 77 Personal Covenant ForeclosureDischarge p 78 Power of salePriorities p 80 Death and Mortgages p 81Question 1Anthony is the registered proprietor of a Torren...

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Tutorial Week 11 – Mortgages Old System Mortgage p 74 Torrens Mortgage Clogs on the Equity of Redemption p 75 Relationship Debt and Mortgages p 77 Personal Covenant Foreclosure Discharge p 78 Power of sale Priorities p 80 Death and Mortgages p 81

Question 1 Anthony is the registered proprietor of a Torrens title property on Sydney’s north shore. He needs funds to renovate and sell the property and so he asks his mother, Sue, if she can lend him the $150,000 that he needs. She agrees but requests that he give her a letter noting the terms of their agreement. Instead of the letter, Anthony hands over the Certificate of Title (the folio of the register), together with a signed, but blank, Transfer of the property saying, “Keep these safe - you’ll be able to sell the house to get the money back if anything should happen to me.” Anthony quickly spends the $150,000 but has not completed his renovation. He asks his old friend David if he could make a loan of a further $150,000 so that he can get the property to market readiness. At David’s request Anthony executes a mortgage in registrable form. The $150,000 is repayable in one year. The mortgage agreement also stipulates that David has an option to purchase the property at any time within the next 3 years at a price of $400,000. The mortgage remains unregistered, as Anthony has told David that the Certificate of Title is with his mother for safekeeping. The property market falls and Anthony is unable to sell the property or to repay either of the advances. Advise Sue and David.

Issues: 1. Who holds priority, Sue or David? 2. Who can resell the property, Sue or David? Sue’s interest →

It is apparent that Sue may hold an equitable interest in the form of an equitable mortgage in relation to the land. An implied agreement to give a mortgage (such as a deposit of the Folio of the Torrens Register as security for money advanced). So long as there is an act of part performance which is unequivocally referable to an alleged contract, an equitable mortgage will arise - McBride v Sandland (1918). Anthony handed over his CT and the transfer for this for the purposes of security only is an example of the doctrine of part- performance. Thus, this would remove the need for the mortgage to be in writing. Equity applies the maximum “once the mortgage, always a mortgage” (Seton v Slade (1802)) to characterize this transaction. It is clear that Sue holds an equitable mortgage with Anthony. After depositing the amount of $150,000 and obtaining both the Certificate of Title and Transfer of Property, the elements are unequivocally referable, handed over in the intention to create a mortgage. As Anthony has defaulted on the loan, he had still performed the act and the elements were fulfilled - as such his signature on the transfer, regardless if it is blank, confirms the existence of the agreement. Further pursuant to the case of Bank of NSW v O’Connor (1889) ‘the mere deposit of the certificate of title as security for a loan will create an equitable mortgage or charge over the property to which the document relates.’ Sue may then examine her power of sale. Under s 109(1)(a) of the Conveyancing Act 1919, if you have an equitable mortgage you have a power of sale. Anthony also granted express power of sale to Sue. Sue can use her power of sale to gain her equitable interest and possibly a profit back. David → David has an unregistered interest although he has a signed mortgage in a registrable form as such- thus s54(A) and s23(C) CA has been satisfied on our facts. Once registered as per s58, the mortgagee receives all the benefits of indefeasibility, despite the fact the charge does not amount to an estate in the land (Lyons v Lyons). However, David’s mortgage remained unregistered and as such is not granted indefeasibility of title. As David does not have the certificate of title, he is unable to register the memorandum of mortgage and thus cannot gain indefeasibility. In the case of Hudson v Arap (NSW) Pty Ltd [2015] it was held that although the RPA establishes that a Torrens title mortgage will usually be created by registration, it may also arise by transfer coupled with an agreement that the transfer is by way of security. However, no transfer was made to David. As such, no mortgage agreement exists between David and

Anthony. In finding this, the option to purchase must also be considered. It was held in Sun North Investments Pty Ltd v Dale [2013], that the mortgage and option were not two separate transactions and as such the option is unenforceable, as a clog on the equity of redemption. David also has no power of sale. It is advised that David seek other means in order to gain equitable redemption for his financing. 45 mins onwards- not summarised. Has some extra info and slightly different prirority info.

Conclusion:

An equitable mortgage exists for Sue as there was unequivocal creation of a contract through the handing over the certificate of title to mother. Sue would receive priority over David as she was the first registered equitable mortgage. She can use her power of sale. Unequivocal creation of a contract through Upholding david’s request to have a mortgage signed even though it remain unregistered. The mortgage has also been completed in statutory form but has not been registered. If David is found to have legal title he will prevail. However if he has equitable interest then Sue will be more successful as she had the earlier interest. Once the property has been sold, any surplus funds will be held in and be used to pay out David and any surplus after would go to Anthony....