Typical mortgage enforcement process

Before a mortgagee can attempt to enforce a mortgage, there must be a default by the mortgagor. The terms of the mortgage will determine what constitutes a default. Failure to pay interest on time or the principal of a loan by the due date are very commonly committed defaults, but many mortgages include a long list of other instances in which a default will be deemed to have occurred.

This guidance note starts with commentary regarding the concept of default, and moves onto considering the mortgagee’s goals in the event of default and when taking enforcement action. This is followed by an overview of the typical mortgage enforcement process, focusing on non-National Credit Code (Code) regulated mortgages. This is the case for most guidance notes in this subtopic — a separate guidance note considers matters relating to the enforcement of Code-regulated mortgages.

See Typical mortgage enforcement process.

Mortgagee obtaining possession without court proceedings

Although court proceedings are typically initiated in order for the mortgagee to gain possession, that does not need to occur in every case. The mortgagor may agree to voluntarily hand over possession of the security property, the mortgagee may take possession by way of “self-help”, or there may be a tenant already in occupation of the premises which the mortgagee does not wish to disturb, but to convert to being a tenant of the mortgagee.

Self-help involves a mortgagee physically entering on the premises to take possession. This is a dangerous process if the premises are occupied as if the occupiers resist, the mortgagee may end up inadvertently committing crimes such as forcible entry or assault, and the courts view dimly attempts to take possession through any form of force. If, however, the security property is vacant land, taking possession by self-help is relatively risk-free and is likely to be the best course. Self-help is open to a registered mortgagee but not an unregistered mortgagee.

A mortgagee can take possession of land occupied by a tenant by giving the tenant a written notice explaining that the mortgagee is taking possession, and that the tenant should now pay rent to the mortgagee, which the tenant is then obliged to do.

This guidance note overviews each of these matters, and is designed to be a good starting point for legal practitioners who need to consider matters relating to a mortgagee obtaining possession without court proceedings.

See Mortgage obtaining possession without court proceedings.

Enforcing a registered mortgage

There are state-based or territory-based requirements relating to enforcing a registered mortgage. This guidance note overviews the key requirements of the states and the territories, and is designed to be a good starting point for legal practitioners who need to consider matters relating to enforcing a registered mortgage. It would be prudent for legal practitioners to consult the relevant state or territory legislation to ensure specific state-based or territory-based requirements are met.

Generally, there is no need in proceedings to enforce a registered mortgage to seek orders for sale of the property, as the mortgagee has a statutory power of sale it can exercise without the need for any orders of a court. Even a second or subsequent mortgagee has the statutory power to sell land, although if a higher-ranked mortgagee is seeking to sell the land, the lower-ranked mortgagee may be compelled to hand possession of the land to the higher-ranked mortgagee for that prior mortgagee to sell.

See Enforcing a registered mortgage.

Enforcing an unregistered mortgage

An equitable mortgagee has no statutory power of sale, and thus enforcement proceedings in relation to an equitable mortgage require relief to be sought with respect not only to possession of the security property but also its sale. As an action in ejectment is a common law action which can only be commenced by a person entitled to possession of the land at law (as opposed to a person with an equitable right to possession), the claim for possession by an equitable mortgagee must be pleaded differently than a claim by a registered mortgagee.

This guidance note provides an overview of the standard approach to enforcing an equitable mortgage, including to commence proceedings in the Supreme Court (typically in the Equity Division) by way of a statement of claim, and by judicial sale. This guidance note looks at some practical matters such as the requirement to join prior interest-holders as parties, and what to include in evidence in support of an application for judicial sale and specific performance.

See Enforcing an unregistered mortgage.

Mortgagee sale

There are state-based or territory-based requirements relating to mortgagee sales. This guidance note provides an overview of the process and the key requirements, and is designed to be a good starting point for legal practitioners who need to consider matters relating to a mortgagee sale. It would be prudent for legal practitioners to consult the relevant state or territory legislation to ensure specific state-based or territory-based requirements are met. Some of these legislations are referred to in this guidance note.

Legal practitioners will find the commentary on topics such as preconditions for sale, a mortgagee’s duty in selling the land, and proceeds of sale particularly practical.

See Mortgage sale.

Enforcement of Code-regulated mortgages

The National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) includes the Code as Sch 1 to the Act. The Australian Securities and Investments Commission is the national regulator responsible for administering the NCCP Act.

The Code and the NCCP Act which established the Code heavily regulates the making of loans, and therefore the drafting of the relevant mortgages, governed by the Code.

Legal practitioners should be aware that some of the most significant implications in relation to mortgages include matters relating to the notice provisions imposed in relation to the enforcement of loans, mortgages and guarantees — these are explored in this guidance note.

See Enforcement of Code-regulated mortgages.