Property Law

Any resources on property law (other than AUSTLII) particularly for VIC ? I am trying to get some information on buying mortgages or separating the mortgage from the asset, if that makes sense.

 

Commercial Mortgage Backed Securities? Makes for a GFC if you package up a whole heap of dodgy/non-recourse loans, securitise them and flog them off as an investment product

 

Lol. Not on that scale. Just for individual properties.

 

Buy some legal text books - Land Law by Peter Butt
And
The Essential Guide to Mortgage Law in Australia by Matthew Bransgrove

If you want to read caselaw BarNet Jade - Find recent Australian legal decisions, judgments, case summaries for legal professionals (Judgments And Decisions Enhanced)

 

Thanks. Much appreciated

 

It's not really a property law thing though is it? Isn't it a sort of financial product you buy from the bank/mortgagee?

 

Yes and No:

• Yes: because you can buy the product
• No: Because I am evaluating a below market value property, where one owner wants to sell his share, and the other wants to keep his and then there is the mortgage. Trying to see if the interests and mortgage can be untangled.

 

It can, but would be a breach of their contract with the bank probably.

 

True. But is it possible to transfer the mortgage with the asset ? It's a bit convoluted with the land acts and a lot of ancient latin sounding writs involved and banks do not like it. Makes for interesting read though. Should have studied to be a lawyer

 

Not possible to transfer title because a mortgage must be discharged before title can be transferred.

It is possible to do an equitable assignment of mortgage and property. For NSW see s12 Conveyancing act
CONVEYANCING ACT 1919 - SECT 12 Assignments of debts and choses in action

This would also be a breach of the mortgagor's agreement with the bank.

 

It was my understanding as well
Mortgagor may not have a choice. See div 5 of SHERIFF ACT 2009
It appears even the banks might be limited in holding back the title, even if the mortgage is not discharged:
Kousal v Suncorp-Metway Limited [2011] VSC 312 (6 July 2011)

Which leads to the question: In case of the equitable assignment of equity and mortgage and subsequent sale of the equity, what will the bank do with the mortgage which is secured by a partial asset. Is the original mortgagee still liable ?

 

I would have thought that the mortgage wouldn't have been assignable (this would be dependent upon the mortgage documentation, asset ownership & loan structure) - unless of course it is the financier seeking to offload the loan agreement to another party.

 

Agree that the assignment of the mortgage is prerogative of the mortgagor. However in the situation above "In case of the equitable assignment of equity and mortgage and subsequent sale of the equity, what will the bank do with the mortgage which is secured by a partial asset." the banks would be eager to get rid of a debt securitized by a contaminated asset.

 

Not sure what you mean by referrencing the sheriff act.

That case is an interesting one as it is the one where a $600k property was bought as Sherrif auction for $1000. Suncorp had a mortgage on the property and resisted producing title so the new owner could be registered.

If you assign in equity the legal mortgagor would still be liable for the debt to the mortgagee. Legal outranks equitable dealings. Don't forget a mortgage is different to a loan.

 

Makes sense. Just that the asset is a dog's breakfast that no one wants to touch. No wonder the banks are reluctant to cough up the title.

 

This is why lenders securitise mortgages so that the lender can sell the debt to a wholesale investor to earn a stream of income. Often sold with an option and closer to the security expiry date its repurchased so the original lender retains recourse and not the final investor. Its a common way to exchange a fixed interest stream for a variable rate stream etc using the swaps market. Can also be used to sell down a debt book for cash and balance a portfolio of loans re fixed / variable. AFSL and other licensing issues occur as its a regulated wholesale financial product and cant be sold to mums and dads. Some super funds make a bit on them eg ME Super as they can pull 5% interest.

Usually (some) lenders securitise in the hundreds of millions as a minimum. Doing that blends the individual risks etc....Ever read Liars Poker ? Michael Lewis was a trader in the US who scammed the merchant banks by identifying the high / low post codes and sold off the high risk debt that went bust. Savings and Loans went bust. Excellent book.

 

Given that the lenders have the powers to both (a) Sell the mortgage and (b) foreclose the asset in case of non-payment of debt, why is it that the lenders always choose the path of auction by mortgagee in possession ?

If foreclosure is extremely cumbersome and it is just the procedural ease that the lenders are seeking, then selling the debt would be the ideal solution.

 

They only choose to take possession as a last resort. It is only chosen for serious default.

Are you suggesting they assign the mortgage to someone else - sell it? Who would buy it? I can't imagine they would recover much money this way, whereas taking possession would usually give them their money back in full.

 

1. Fair point, but that is assuming that the property is worth more than the debt + possession costs + resale cost.
2. LMI should pick up some shortfall if applicable. The remaining shortfall would still be the debtor's responsibility.
   
3. An another way of looking at it is from the lender's obligation to "have regard to the interests of the mortgagor". Won't the mortgagor's interest be better served if the additional (legal, sale and delay) expenses, were avoided by a quick sale/auction of just the mortgage.
4. Who would buy it? There would be buyers willing to buy it, if they can extract value from the deal by asking the mortgagor to forsake a portion of his/her equity to avoid foreclosure or obtain lenient lending terms. A lot of equity-debt hybrid scenarios are possible which is a win-win for both. Similar to what happens in case of commercial distressed debt.

 

why would a lender be inclined to take an approach like that? at the moment it's simple. assuming all options are exhausted, it looks like there's no chance of the mortgagor keeping up with payments and the mortgagor hasn't shown willingness to sell the property themselves and pay out the bank, currently they A) take possession and B) auction it off for a fair price.

thats a simple and straightforward option for them to take. looking to flog off the debt doesn't make sense from their pov.

occams razor...