Legal Tip 227: Mortgages to Trusts and Bankruptcy

One strategy I sometimes see promoted is an individual giving a mortgage over an existing property to a related trustee of a discretionary trust. This supposedly involves protecting the property upon bankruptcy.


It can be a good strategy, but it does not work like it is said to. Some people have described it as being like an invisible forcefield that surrounds a property which prevents attack.


Under s 136 of the Bankruptcy Act the trustee in bankruptcy can demand the mortgage be removed by giving up to 6 months’ notice.
BANKRUPTCY ACT 1966 - SECT 136 Right to pay off mortgages


A contract or deed such as a mortgage can be void also because of s 301 and s 302 of the Bankruptcy Act

BANKRUPTCY ACT 1966 - SECT 301 Certain provisions in contracts etc. to be void
BANKRUPTCY ACT 1966 - SECT 302 Certain provisions in bills of sale etc. to be void


And a mortgage designed to defeat creditors can be void under s 121 of the Bankruptcy Act
BANKRUPTCY ACT 1966 - SECT 121 Transfers to defeat creditors

Also, state legislation can apply as well and a mortgage could be void because of s37A of the Conveyancing Act (NSW) with similar laws in every state of Australia
CONVEYANCING ACT 1919 - SECT 37A Voluntary alienation to defraud creditors voidable

Under valued transactions could also be caught by s 120 of the Bankruptcy Act
BANKRUPTCY ACT 1966 - SECT 120 Undervalued transactions

Furthermore, a mortgage is used as security for something such as a loan. You cannot expect a mortgage to be effective if it is just registered on title – even less so if not registered.

There must be something that the mortgage secures and if this sometime doesn’t exist then the mortgage is nothing more than fiction. For example if the mortgage is securing obligations under a loan then if the loan does not existing there would be no legal right to mortgage.

 

impressed with your prompt write up of the new tip terryw!!

do you have another tip on (asset) protecting PPOR owned in individual's name?
Is it something that can actually be achieved effectively against bankruptcy and/or litigation
situation without incurring asset transfer and the associated costs?

Are you or anyone else on PC provides professional advice/help with such set up?

Thanks,
FXD

 

Legal Tip 115: The Gift and Borrow Back Strategy, Part 1
https://propertychat.com.au/community/threads/legal-tip-115-the-gift-and-borrow-back-strategy-part-1.7544/

 

Brilliant terry, your the man, thank you for your insightfulness