3015LAW Lecture Notes - Lecture 7: Australian Consumer Law, Standard Form Contract, Australia And New Zealand Banking Group
1. MORTGAGES
Nature of Mortgage
- Mortgage a form of secured loan (including over real property) cf unsecured loan (such
as credit card).
- Significance of security interest – added protection for the lender (able to sue on the
personal contract where default in payment by borrower, but also able to sell the
secured interest to recoup outstanding debt).
- Secured – better for lender
- Unsecured = no right to asset if defaulted but mortgage it is secured
- Sue in contract but no direct access to asset - bankruptcy or insolvency proceedings
- Terminology:
olender = mortgagee = person “taking” the mortgage.
oborrower = mortgagor = person “giving” the mortgage.
Old System Mortgage
- Mortgage created when:
ofunds advanced by the mortgagee to the mortgagor; and
othe mortgagor transfers their legal interest to the mortgagee.
- The deed of conveyance contains an express proviso that mortgagee will reconvey the
land back to the mortgagor on discharge of debt (legal right to redeem).
- Legal right to redeem
- Money advanced
legal title
M/or M/ee
money
- Common law rules clear and inflexible/harsh – pay the last payment at the due time (ie
not earlier or later) or forfeit the legal right to redeem!
- Harshness of common law led to development of equitable right to redeem:
oright to repay the debt even if the contractual date for repayment has passed.
ocf equity of redemption: e of r = market value minus outstanding debt (an equitable
interest in land which can itself be sold, mortgaged, leased etc) (although e of r and
equitable right to redeem often used interchangeably).
oRepayment = particular date indicated then borrower would lose right to property
and any payment made to date
oExtension of time to pay
oCourt of equity will consider particular circumstances of borrower
oFailure to meet payment = equitable right to redeem
Torrens System Mortgage
Property Law Act
SECTION DETAILS
S 3 a mortgage includes a charge on any property for securing money or
money's worth
Land Title Act
S 4, Sch 2 mortgage “includes a charge on a lot or an interest in a lot for securing
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money or money’s worth”
S 74 a registered mortgage of a lot or an interest in a lot operates only as a
charge on the lot or interest for the debt or liability secured by the
mortgage
S 72 mortgage must be in correct form of instrument
S 73 Mortgage must include a description sufficient to identify the interest to
be mortgaged
S 184(1) Mortgagee/lender, as a registered proprietor, is entitled to the benefits
of indefeasibility subject to any relevant exceptions
- Registered mortgage = only as a charge
- No transfer of legal title that occurs at common law
oDespite technical difference between ‘mortgage’ and ‘charge’, PLA and LTA treat
two as being synonymous.
oTorrens system changes the old system mortgage over land into a charge over land:
under the Torrens system the borrower remains the registered owner of the
legal estate.
looks more like a charge than a mortgage, but the legislation uses the
language of “mortgage”.
oUnder LTA, mortgage must be:
in correct form of instrument (s 72).
be validly executed;
include a description sufficient to identify the lot to be mortgaged;
include a description of the debt or liability secured by the mortgage; and
include a description sufficient to identify the interest to be mortgaged (s
73).
oIn Tessman v Costello, in personam exception argued (ie equivalent of LTA, s 185(1)
(a) equity exception).
Tessman v Costello
tessmans entered into mortgage, to pay for overdraft for their son, sold mortgage to
costellos, costellos elderly couple which was apparently relevant to their capacity to enter
into contract. Son had unconscionable conduct and induced them to enter for tessman. Son
taken advantage of illness of tessman to take out loan.
HELD On circs there was no unconscionable conduct. Third party. No evidence of
unconscionable nor that they did not understand. Family issues. Mortgage sold to costello
--> they have interest now.
Status of unregistered mortgages
- Generally speaking unregistered mortgage = equitable mortgage (Barry v Heider).
- Not complied with = unregistered mortgage = equitable mortgage
- Part performance = provision of loan, provision of certificate of title
- Unregistered not accepted generally
- An equitable mortgage may arise in the following circumstances:
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owhere the instrument of mortgage is registrable but not yet registered;
owhere the instrument is not in registrable form and does not satisfy the
requirements of a deed, but satisfies the requirements of ss 10, 11 of the PLA
and there has been valuable consideration; or
owhere there is an oral agreement, with sufficient acts of part performance (eg a
certificate of title has been deposited with the mortgagee = LTA, s 75(1)).
- Enforceability of mortgage an issue where land subject to equitable mortgage
transferred to bona fide purchaser who becomes registered proprietor.
Contents of mortgage
- Most mortgages are a “standard form contract”: difficult to negotiate with a large
institutional moneylender, such as a bank.
- Three important categories of terms:
oterms related to payment of the principal and payment of interest;
oterms designed to preserve the mortgaged property; and
oterms providing for remedies in the event of default, including covenants
designed to help the mortgagee implement those remedies.
- Requirement to repay principal plus interest:
ousually an express term.
ootherwise implied under PLA, s 78(1)(a): borrower obliged to pay back the debt
at a rate of interest agreed to at the time of entering into mortgage.
oWill also include method and time frame
oNo general right to discharge early = cannot repay early
oGenerally will include express term to provide for early repayment
- In order to preserve the value of the mortgagee’s security, mortgage will generally
include express terms requiring the mortgagor:
oto maintain the property in good repair;
oto insure the property;
oto pay rates and taxes levies on the property; and
oto comply with all statutory requirements and not to deal with the property
except with the mortgagee’s consent.
- If not express then implied obligation that the mortgagor will keep any improvements
on the land in as good and substantial repair as they were at the date of the mortgage:
PLA, s 78(1)(b).
- In addition, implied right for mortgagee to enter and view the property: PLA, s 78(1)(b).
- Consent = unoccupied, do not lease without consent of mortgagee
- Mortgage will set out remedies which may be used by mortgagee in the event of default.
Usually will include:
oa power of sale;
oforeclosure (the effect of which is to bar the right of the mortgagor to redeem
the mortgage);
oappointment of a receiver (agent); and
oentry into possession.
Protection of Mortgagor
- Protection for mortgagors primarily found in equity and under statute:
ono clogging the equity of redemption;
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Document Summary
Mortgage a form of secured loan (including over real property) cf unsecured loan (such as credit card). Significance of security interest added protection for the lender (able to sue on the personal contract where default in payment by borrower, but also able to sell the secured interest to recoup outstanding debt). Unsecured = no right to asset if defaulted but mortgage it is secured. Sue in contract but no direct access to asset - bankruptcy or insolvency proceedings. Terminology: lender = mortgagee = person taking the mortgage, borrower = mortgagor = person giving the mortgage. Mortgage created when: funds advanced by the mortgagee to the mortgagor; and, the mortgagor transfers their legal interest to the mortgagee. The deed of conveyance contains an express proviso that mortgagee will reconvey the land back to the mortgagor on discharge of debt (legal right to redeem).
