In La Trobe v MDVest [2017], 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.

Background

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.

Conclusion

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.

Related articles

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Construction of Contractual Terms & Priority Between Lenders

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. 

The post Assignment of Mortgage & Loan Agreement in Dispute appeared first on Elliott May.

In AET SPV Management Pty Limited v Wildfire Amusements Pty Ltd the court was required to construe an agreement to determine whether a mortgagee had agreed to postpone the priority of its first registered mortgage in favour of another lender.

Summary of Facts

A property was purchased by APH from Wildfire for $10 million, of which $7 million was paid on completion. The balance of $3 million was the subject of special conditions providing for payment by way of trade through residential and hotel apartments (“Trade Balance”). To further secure this Trade Balance, APH promised to execute a consent caveat in favour of Wildfire on or before completion.

The sale was completed on 29 July 2008. A consent caveat was lodged. This consent caveat did not apply to various instruments including any mortgage of the land granted in favour of BOSI (a financier) and any transfer or assignment of such a mortgage. BOSI later assigned its rights as mortgagee to the applicant in these proceedings, AET SPV Management Pty Limited.

The development did not proceed as anticipated, leading APH to enter into an agreement to sell the property.  

Wildfire claimed that APH was obliged to pay it $3 million pursuant to the sale contract. And it commenced proceedings against APH to recover that sum. In contrast, the mortgagee sought a final determination of its claimed entitlement, as first registered mortgagee over the property “to payment first out of the proceeds of sale of the Land in priority to Wildfire’s claim to an equitable charge or security interest in the Land”.

The mortgagee also sought an order to remove the caveat in favour of Wildfire. Justice McMurdo found that the balance of convenience favoured an order that the caveat be removed on certain terms, namely that the mortgagee should retain the disputed sum of $3 million in the trust account of its solicitors until determination by the Court as to which of the competing securities enjoyed priority to those funds.

Decision

The issue of which security enjoyed priority turned on the construction of a Tripartite Deed entered between Wildfire as vendor of the land, APH as purchaser and BOSI (later transferred to AET) as financier.

The key provision identified by Justice Applegarth was clause 3 (Removal of Consent Caveat) which stated:

The Vendor agrees (and the Beneficiary acknowledges) that upon receipt of:

(a) written notice from and Enforcing Party that it is enforcing its rights pursuant to the Securities; and

(b) payment by an Enforcing Party to the Vendor of an amount equal to the Vendor’s Debt, the Vendor shall no longer have any Interest in respect of all or any part of the Land and the Vendor undertakes to the Financier:

       i.  to promptly remove all of its Registered Interests from the relevant register in respect of the Land; and

      ii.  to give written notice to the Financier and such other persons as the Financier may direct that the Vendor 

           no longer has any Interest in all or any part of the Land

Construction of Clause 3

The mortgagee submitted that clause 3 said nothing about priorities. It submitted that clause 3 was not solely concerned with enforcement by sale. Rather it contemplated any situation in which the mortgagee wished to extinguish any interests (including any caveat) that Wildfire had acquired. In other words, it argued that clause 3 conferred on it an additional right, rather than remove its right to priority.

On its argument, the overarching structure of the Tripartite Deed was said to be that:

• The first mortgagee always had priority over Wildfire;
• However, if for any reason (and regardless of what other enforcement steps are taken) the first mortgagee wishes to extinguish Wildfire’s interests in the land, and remove its caveat or any other registered interest over the land, it has the option of doing so by paying to Wildfire the sum of $3 million.

The respondent, Wildfire, submitted that clause 3 addressed the subject of “Removal of Consent Caveat” and envisaged a financier “enforcing its rights pursuant to the Securities”. Justice Applegarth found this view to run ‘contrary to well-established canons of construction’. His Honour stated:

The fact that cl 3 of the Tripartite Deed is headed “Removal of Consent Caveat” does not mean that it is the only means by which a caveat can be removed. The text, and not simply the heading of cl 3, govern its interpretation and operation. Clause 3 casts an obligation upon Wildfire to remove its consent caveats in certain circumstances. It confers corresponding rights upon the financier (in this case, the applicant as assignee from BOSI) to have the caveats removed. The circumstances are the giving of the required written notice pursuant to cl 3(a) and the payment of $3 million pursuant to cl 3(b). The applicant may choose to exercise its rights pursuant to cl 3. It is not obliged to do so. I accept the applicant’s submissions that cl 3 confers an additional right upon the first mortgagee.

Rather than being a code governing the withdrawal of caveats, clause 3 contained a promise by Wildfire that it would promptly remove its consent caveats and no longer have any interest in the land if it was paid $3 million.

Conclusion

Clause 3 conferred an additional right upon the first mortgagee. Clause 3 did not affect the mortgagee’s entitlement as first mortgagee to priority over Wildfire to payment out of the proceeds of the sale, being a sale affected by the mortgagor, APH, and not by the mortgagee in the exercise of its power of sale. Therefore, Justice Applegarth declared that the applicant, as first mortgagee, was entitled to payment first out of the proceeds of sale of the Land in priority to Wildfire’s claim to an equitable charge or security interest in the property.

The judgment may be read in full by following the link below:

• AET SPV Management Pty Limited v Wildfire Amusements 

Related articles

Assignment of Mortgage & Loan Agreement in Dispute

This publication is provided for your general information and interest only. It is not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

The post Construction of Contractual Terms & Priority Between Lenders appeared first on Elliott May.