Property A Summary Security Interests Notes

Security Interests: Mortgages

A security interest is a property right attached to a debt

• Types of Mortgages

  • General Law Mortgage

    • Legal title is transferred to the mortgagee while the debt is outstanding, but has a contractual obligation reconvey it to the borrower when the debt is repaid

      • They are not entitled to possess or sell due to their equitable rights. Equity looks to the substance not form of the transaction: it is the provision of security for a loan, not a transfer of ownership

    • Mortgagor left with equity of redemption.

  • Torrens System Mortgage

    • It is not a “true” mortgage, rather a statutory charge or hypothecation security.

      • It crystallises when the borrower defaults.

      • The mortgagor remains the registered proprietor of the legal estate

    • Upon registration, the mortgagee acquires a registered interest in land in the form of a statutory charge, NOT the legal title (S 74(2) TLA)

    • Subsequent registered mortgages can be made

    • When debt is repaid, the mortgagor has a statutory right to call for a discharge

  • Equitable mortgage (same of GLL and TSL)

    • Equity would enforce a mortgage which did not satisfy the requirements of GLL or TSL if it was evidenced in writing OR in an oral agreement supported by sufficient acts of part performance ANZ v Widin

    • An advance of a sum of money by the lender upon the borrowed handing over the title deeds are acts of PP

    • Creation of equitable mortgages without written documentation is now restricted by the NCC in transaction to which the code applies.

• Right of the mortgagor

  • In Statute (National Credit Code): A nationwide scheme the offers protection to people who enter into a credit arrangement

    • The NCC applies to mortgages if:

      • They secure obligations under a credit contract (s7a) and the mortgagor is a natural person or strata corp. (s7b); AND

      • The credit contract is a contract under which credit (debt deferred, defined in s3) may be provided (s4); AND

      • A charge is made for providing credit (s5(1)(c); AND

      • A charge is provided in the course of business providing credit (s5(1)(d)); AND

      • The credit must be provided wholly or predominately for personal, domestic or household use (s5(1)(b)(i))

        • Predominately means more than half or where goods/services are mostly used for those purposes (s5(4)(a +b)

        • Investments which are not personal, domestic or household purposes (s5(3)).

        • If the mortgagor, before entering into the contract, declares that the credit is not predominately for a personal, domestic or household purpose, it will be presumed not to be for those purpose (s13) – this is rebuttable.

      • If a party claims the NCC applies to a mortgage, a presumption will arise that it does – this is rebuttable (s13).

      • The NCC doesn’t apply to a range of situations in s6, including a credit contract for less than 62 days (with conditions) or where credit is provided without prior agreement.

      • You cannot contract out of the NCC (s191)

        • Presumed code applies unless the debtor declares before entering contract that the credit is not obtained for a code purpose. This declaration is ineffective if the credit provider knew or ought reasonably to know that the predominant purpose was a code purpose s 13

      • Key NCC provisions for Mortgages:

        • S42 – Mortgage must be in writing and signed by the mortgagor.

        • S 44 – Mortgage must identify/describe the property. Mortgages over “all property” are void

        • S45 – Mortgage over future property are void unless the property is described/identified or in order for a property to be acquired with the credit

        • S48 – 3 party mortgages are prohibited.

        • S49 – Mortgage is void if it secure more than the debt owed.

        • S50 – list of prohibited securities

        • S51 – Mortgagor cannot assign property without the consent of the mortgagee (1), however consent cannot be reasonably withheld (2). This carries a penalty of 100 units and is a strict liability offences

      • The courts can re-open unjust credit contracts and mortgages on application by the debtor (s76(7)), and they may set aside or vary the contract or order a mortgagee to take steps to discharge a mortgage (s77).

        • Unjust means unconscionable, harsh or oppressive (s76(8))

        • Must be unjust at the time entered into or changed (s76(1))

        • Courts can look at all circumstances (s76(2)) except circumstances that were not reasonably foreseeable at the time entered into or changes (s76(4))

      • ASIC Act

        • Extends protection to mortgagors in cases of unconscionability

        • S 12CB and 12CC

        • Provides protection to mortgagors against misleading & deceptive conduct S 12DA

  • In Equity

    • They have a contractual right to redeem if the loan is repaid by the due date: ‘equity of redemption’ (the term is applies to TS and GLL, even though technically TSL does not have it)

      • If they choose to take out another mortgage on your equity of redemption: it is an equitable mortgage

        • If you only hold an equitable interest in land, you can only create an equitable interest in it

        • Enforceable against all but a bona fide holder of the estate.

    • Mortgagor can further mortgage, transfer, or do anything they normally would with their proprietary interest.

    • No ‘clogs on the equity of redemption’: Mortgagee cannot postpone equity of redemption after repayment.

    • Unconscionability: Transaction procured by unconscionability or undue influence may be set aside by equity. Is it unconscionable to allow the mortgagee to enforce the transaction against the mortgagor when the mortgagee had closed his eyes to the vulnerability of the parties and the misconduct of the son eg. Amadio

      • Elderly Couple with little business experience

      • Unfamiliar with written English

• Rights of the Mortgagee (we examine only TSL)

  • Note: the NCC may affect the exercise of a mortgagee’s remedies (can re-open unjust transactions – however this power seems to be limited to circumstances existing at the time the mortgage was entered into rather than subsequent action by the mortgagee)

  • Right to sue on personal covenant

    • In mortgage there will be a specific...

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