The issue of an Assignment of Mortgage came under dispute in a recent Supreme Court of Western Australia ruling. Was the transfer of loans to a third party valid?
In La Trobe v MDVest , the borrowers disputed three prior judgments in favour of the lender. They contended that the lender was not entitled to judgment in each action. The borrowers presented a number of reasons for resisting judgment, including the issue of Assignment.
What is an Assignment of Mortgage?
A mortgage over a property provides the lender with security for loans made to a mortgagor. From time to time banks or lenders will buy or sell these mortgages. An Assignment is the legal process by which the debt and associated mortgage is transferred from one lender to another. This will often be formalised by way of a deed of assignment including a transfer of mortgage.
A Notice of Assignment informs the debtor that a third party has taken over their debt and security.
In August 2013 the credit provider, Permanent Mortgages, entered a loan agreement with the borrowers. A mortgage over a property in Dempster Road, Myrup provided security for the loan. Permanent Mortgages was the first registered mortgagee.
The initial loan had a 12 month repayment term. A further 2 year renewal resulted in the loan repayment expiring on 31 August 2016.
Assignment of mortgage, loan agreement and guarantee
In October 2015 Permanent Mortgages assigned its interest in the loan agreements, mortgage and guarantees to La Trobe Financial. In December the registration of the transfer of mortgage occurred. However, due to an oversight, no written assignment of the loan agreement and guarantee occurred in October.
Subsequently, the borrowers defaulted on the terms of the loans and the lender obtained judgments.
The borrowers, however, contested the right of La Trobe to the judgments.
Assignment of mortgage not effective
The borrowers contended that the assignment of mortgage, loan agreement and guarantee was not effective.
The first argument was that the Deed of Rectification was not admissible as it was not stamped for duty. According to the Duties Act 2008 (WA), duty is imposed on dutiable transactions. However, if the balance of the mortgage is equal to or greater than the market value of the security interest, then the assignment is not a dutiable transaction. The Court found this to be the case, concluding that no duty was payable.
Secondly, the borrowers argued that, on the balance of probabilities, the assignment did not occur. In this instance, the Court disagreed and found no reason to dismiss the evidence provided by La Trobe’s mortgage manager. The evidence, together with the recitals to a Deed of Rectification, satisfied the Court that the assignment indeed took place in October 2015.
No notice of the assignment given
The borrowers further asserted that they received no written Notice of Assignment.
The Property Law Act 1969 (WA) states that in the assignment of debt, the debtor must receive notice in writing. However, evidence showed that on 2 occasions the lender provided written communication of the assignment to the borrowers.
Periodically the assignment of debt takes place between lenders. Therefore it is important that the arrangement is properly documented. And that both the debt and all relevant forms of security are transferred to the assignee. It is too often the case that a lender will assign the debt but neglect to assign or transfer the mortgage. This results in a situation where the assignee holds the right to enforce the debt but no right to recourse against any security property as this remains with the original lender. When this happens, the assignee is in the unenviable position of being an unsecured creditor.
Proper notice of the assignment of the debt and security should also be provided to the debtors and mortgagors without delay.
This publication is for your general information and interest only. It is therefore not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek advice tailored to your specific circumstances.