How can I have a mortgage discharged if the lender has been wound up?

In an unusual case, the Supreme Court of Victoria was called upon to order the discharge of 2 mortgages in circumstances where one of the mortgagees had been liquidated, and subsequently deregistered. The other mortgagee had become a bank but did not have records dating back over 30 years ago. 

Older readers will recall the demise of the Pyramid Building Society (and its related entities) in 1990. The group collapsed owing over $2 billion, a staggering sum at the time. The liquidation of the group took over 16 years to complete, with final dividend cheques being sent to its investors in 2006. Pyramid was deregistered in 2001. 

In Kam-Sui Ing v Australian Securities and Investments Commission & Anor [2023] VSC 632 Associate Justice Ierodiaconou ordered the removal of the two mortgages in question from the title of the property. 

Background

The plaintiff was the surviving registered proprietor of a residential property in Balwyn. The plaintiff and her husband bought the property and became joint registered proprietors in January 1988. The plaintiff's husband died in 2017, and the plaintiff subsequently became the sole registered proprietor.

A $40,000 loan from Heritage Building Society was secured by a first mortgage on the title to the property, and a later $160,000 loan from Pyramid Building Society was secured by a second mortgage. 

The underlying loans were paid in full in about 1993. As the plaintiff's husband dealt with the family finances, she was unable to provide any further detail. 

The plaintiff provided a copy of a letter from 1993 from Pyramid Building Society confirming that its loan had been repaid and lawyers had been appointed to discharge the mortgage. 

The plaintiff also confirmed that there had been no further demands for money from either mortgagee, and she held the original paper certificate of title.

In the thirty years since, both mortgagees (Heritage Building Society and Pyramid Building Society) had become defunct.  The plaintiff’s solicitors unsuccessfully attempted to find an agent to act on the mortgagees’ behalf and discharge the mortgages. 

Ultimately, the Supreme Court of Victoria ordered that the Registrar of Titles remove the mortgages from the register.

In the unusual circumstances of the case, the lawyers for the plaintiff conducted extensive inquiries in their search for someone to discharge each mortgage. 

Ierodiaconou As J noted at paragraph 23 of her judgment:

"Given their inquiries had taken a Dickensian turn, the plaintiff initiated this proceeding on 30 June 2023." 

The plaintiff's application was for orders under section 103 of the Transfer of Land Act, which provides: 

(1)              In any proceeding in a court relating to any land or any instrument or dealing in respect thereof if the court directs the Registrar to make any amendments to the Register or otherwise to do any act or make any recordings necessary to give effect to any judgment decree or order of the court the Registrar shall obey such direction.

The Court concluded that amendment in this case was necessary to correct an error on the Register, namely, the undischarged mortgages. The Court accepted the plaintiff’s evidence and was satisfied that the mortgages were paid in full. The discharges were – for reasons unknown – not registered. 

The Court also considered whether section 84(2) of the Transfer of Land Act applied to the case and concluded that it is arguable that the section applied, and as a result, the Court could direct the Registrar to take action under that section. 

The Court was satisfied that the mortgage loans were paid in full. It may be inferred that any action for recovery would be statute-barred per s 20 of the Limitation of Actions Act 1958 (Vic) given the following circumstances: the mortgages were registered in 1988 and 1989 respectively, there were no loan repayments made after mid-1993 and no demands for such were made.

Regarding s 84(2)(b): the evidence showed that despite the extensive inquiries by the plaintiff’s solicitors, mortgage discharges could not be obtained because the mortgagees are body corporates and either their authorised agents cannot be located, or their agent’s signature cannot be obtained within a reasonable time.

Here, the Court found that the owners did everything necessary to achieve the discharges, and due to an unknown error, the discharges were not registered. 

The only other matter for comment should really go without saying: lawyers should encourage their clients to obtain and register a discharge of any mortgages over real estate titles that are repaid. Clearly this happened here, and yet the plaintiff was left without recourse other than a Supreme Court proceeding.

I understand that there may be strategic or commercial reasons for keeping the appearance of a mortgage on the title to real estate, and for allowing the mortgagee to retain the title to real estate, but in reality, disasters like this can be avoided. 

Apart from checking that the discharge was in fact registered it is difficult to see what else the plaintiff could have done. 

WG Stark 

Owen Dixon Chambers

Are there any more recent cases about a mortgagee's duty of good faith in selling real estate?

With interest rates continuing to rise in late 2023, it seems that we are likely to see more mortgagees taking steps to realise mortgaged property. 

On 2 June 2021, I posted about a Queensland decision (HSBC Bank Australia Ltd v Wang & Ors [2021] QSC 58) rejecting criticism of a mortgagee's conduct of a sale during the pandemic (see: https://melbournepropertylaw.blogspot.com/2021/06/are-there-any-recent-cases-about.html). 

On 17 January 2023, I posted about a Victorian Supreme Court decision (230V Harvest Home Road Pty Ltd v Joseph Salvo & Ors [2021] VSC 558) that found that the mortgagees there had not breached their duty of good faith in selling during the pandemic (see: https://melbournepropertylaw.blogspot.com/2023/01/are-there-any-recent-victorian-cases.html). 

On 18 January 2023, I posted about a Victorian Supreme Court decision (Manda Capital Holdings Pty Ltd v PEC Portfolio Springvale Pty Ltd [2022] VSC 381) that found that the mortgagees there had not breached their duties under section 420A of the Corporations Act in their conduct of the sale of a security property during the pandemic (see: https://melbournepropertylaw.blogspot.com/2023/01/are-there-any-cases-about-mortgagees.html). 

More recently, there is a decision by the Court of Appeal in New South Wales (Hung v Aquamore Credit Equity Pty Ltd [2022] NSWCA 272). 

In that case, Justice of Appeal Macfarlan gave the principal judgment. President Ward and Mitchelmore JA agreed, making the decision unanimous. 

Background

Aquamore (the mortgagee) loaned $8.925m to First on First (the borrower). 

As security, the mortgagee obtained a mortgage from the borrower over a property in Blacktown, Sydney, and guarantees from its directors. Following the mortgagee's service of a purported notice of default (that was ultimately found to be invalid), the mortgagee took possession of the property with a view to exercising its power of sale as mortgagee. The property was ultimately sold for $10 million, no step having been taken by the mortgagor or the guarantors to restrain the sale.

Subsequently, the mortgagee sued for a substantial shortfall against the guarantors, and the borrower and guarantors cross claimed against the mortgagee, alleging a breach of the mortgagee's duty relating to the mortgagee sale. 

The trial judge (Meagher JA) found that: 

a. The mortgagee was not authorised to exercise its power of sale.

b. Despite finding a., the borrower had not proven that it suffered any damage due to the mortgagee's unauthorised exercise of the power of sale, as distinct from the mortgagee's alleged breaches of duty in conducting the sale.

C. The borrower had not proved that the mortgagee did not take all reasonable care in selling the property. 

The failure to prove a loss came about due to disputed expert evidence (the mortgagee's expert valued the property at $9,825,000; the borrower's expert at $15,000,000).

The NSW Court of Appeal dismissed an appeal that was based upon a submission that the trial judge had not provided adequate reasons for preferring the mortgagee's expert opinion evidence over the borrowers. The appeal also challenged the finding that the mortgagee did not breach its equitable and statutory obligations in the course of exercising its power of sale as mortgagee of the property.

In fact, the Court of Appeal found that the trial judge considered in detail whether the mortgagee had breached its general law or statutory obligations in exercising the power of sale. He referred to the general law obligation of a mortgagee exercising a power of sale to act in good faith and to the duty of care imposed by s 420A of the Corporations Act 2001 (Cth) (which was applicable to the mortgagee as it was a “controller” within the meaning of that term as defined in s 9 of the Corporations Act).

At paragraph 72 of his judgment, Meagher JA concluded. 

Thus the principal question to be addressed is whether the mortgagee has taken all reasonable care in advertising and selling the property. What must be done to comply with that general obligation will ultimately depend on the circumstances of the particular case (Boz One Pty Ltd v McLellan [2015] VSCA 68 at [371]; (2015) 105 ACSR 325). A breach of the requirement to take all reasonable care is not established merely because a mortgagee fails to realise the property for its market value (Boz at [168]). The focus remains upon whether the process utilised to effect the sale was undertaken with reasonable care (Investec Bank [(Australia) Ltd v Glodale Pty Ltd (2009) 24 VR 617; [2009] VSCA 97] at [46]).

Ultiamtely, the Trial Judge reached the following conclusions on this topic (at paragraph 107):

Before selling the property, [the mortgagee] sought and obtained advice from [an experienced professional real estate agent] as to the manner in which the property might be sold and the price likely to be achieved assuming the marketing campaign [the agent] proposed. That advice was sought in the context of [the agent]) having undertaken an earlier sales campaign. In the light of [the agent’s] somewhat pessimistic description of the state of the market, the mortgagee is certainly not shown to have acted unreasonably in deciding to sell the property to [the proposed buyer] for $10 million.

108   The exchanges between [the mortgagee's director and the borrower's director and guarantor] in mid-December 2017 concerning the latter’s consent to a sale at that value do not suggest that sale was regarded by [the guarantor] as outside the market range at that time. Nor do the results of [the agent's] earlier marketing endeavours suggest otherwise. In the face of [the agent’s] advice as to the state of the market, [the mortgagee's] decision to sell for $10m, rather than proceed with a marketing campaign which the agent did not think likely to produce a higher price, was justifiable and reasonable. 

109    The valuation evidence confirms the reasonableness of that decision, in the sense that [the mortgagee's expert valuer] opinion, which I accept, assessed a market value which was less than the amount for which the property was sold.

The Court of Appeal emphasised that success in establishing an error by the trial judge in accepting one valuer's evidence over another would not of itself have led to the appeal being allowed. The Court then considered the judge's evaluation of that expert evidence and concluded there was no error in the analysis. 

The Court noted that the relevant legal principles are:

        ... a breach of the requirements to take all reasonable care [or to act in good faith] is not established merely because a mortgagee fails to realise the property for its market value. ... His Honour then referred to the statement of Palmer J (Mason P and Ipp JA agreeing) in Stockl v Rigura Pty Ltd [2004] NSWCA 73 at [37] that “[t]he test of good faith focuses primarily upon whether the mortgagee has seriously failed to take reasonable steps in all of the circumstances to obtain a proper price, and not upon what valuers may say the property should have sold for”. An additional difficulty for the appellants in the present case is that, although the valuers expressed views as to the value of the property at the date of the mortgagee’s first contract to sell (that is, 5 March 2018), both relied to a significant extent on sales, said to be comparable, that occurred after that date. 

The Court of Appeal noted that not only were post valuation date sales of doubtful or at least limited utility in establishing a breach by the mortgagee of a duty of good faith or the statutory duty to take reasonable care, but the appellants’ case in this regard also suffered from the problem that there was an absence of instructions to either valuer to consider the mortgagee's conduct in attempting to sell the property and the various communications it had with possible purchasers in the 12 months prior to the January 2019 sale (see Stockl v Rigura Pty Ltd [2004] NSWCA 73 at [31]–[34]; ACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia (2014) 89 NSWLR 209 at 222; [2014] NSWCA 402 at [65]). Nor were those matters the subject of evidence from any other experts.

Conclusion 

There have been very few successful challenges by a borrower or a guarantor to a sale by a mortgagee as being in breach of the mortgagee's duty. This is yet another example of the types of hurdles that need to be overcome to achieve success.  

WG Stark 

Owen Dixon Chambers