Mortgage Defaults

Contributed by Elizabeth Samra and Andrew Tan (Consumer Law Centre of the ACT) and AGS secondee Subeta Vimalarajah and current to March 2022.

The Land Titles Act 1925 (“LTA”) deals with mortgages including the exercise of the power of sale of mortgagees (i.e. lenders). This is a complex area of law and legal advice should be obtained in the event of a mortgage default. Proceedings are commenced in the Supreme Court for a mortgagee to take possession of land. However, certain events must occur before the mortgagee can gain possession.

Definition of default

A default may occur under the following conditions:

• When the borrower, called a mortgagor, fails to pay the full amount of any payment on time or within a set period set by the mortgage document;
• A default can also occur when a mortgagor fails to repay an instalment on a due date, for example, a lump sum, or fails to pay a loan in full if the loan has a set date for repayment;
• A default can also occur when a mortgagor breaches the terms and conditions of the mortgage loan agreement, for example, fails to insure the property, fails to pay rates or land taxes, or the mortgagor enters into an arrangement with creditors or is made bankrupt.

If a default occurs

In the event of a default by a mortgagor, the mortgagee must a provide written notice of the default under s 93(2) of the LTA and s 88 of the NCC advising the mortgagor that the mortgagee will undertake enforcement action to take possession and sell the property if the default is not remedied. Under the LTA the mortgagor has one month after the service of the notice to remedy the default and under s 88 of the NCC the mortgagor has 30 days from the date of the notice. These notices are usually combined.

If the mortgagor does not pay the arrears and the repayment due during the notice period:

• the whole loan may become due and payable after the notice period ends; and
• the mortgagee can take action to repossess the property.

After this period has elapsed, the mortgagee has power to enter into possession of the property, or apply to the court for an order for possession of land. No court action is required to take possession. However, most mortgagees prefer to apply for an order of possession where the property is occupied.

An application for an order of possession of land is made by way of Originating Claim and Statement of Claim in the Supreme Court. The mortgagor has 28 days from the date they were served the Statement of Claim to file a defence. After the 28 days has expired the mortgagee can then apply to get a court judgment for possession of land.

A mortgagor should as a matter of priority seek legal advice. A defence may be raised if, for example, the mortgagor did not receive a benefit from the loan or could not afford the repayments. The mortgagor, if the mortgage is regulated by the NCC, could also seek a hardship variation. Consideration should be given to making an application at an External Dispute Resolution scheme before judgment to stay proceedings (see External Dispute Resolution).

After at least 7 days from the date of service of an order of possession of land, the mortgagee can apply to the court for an order for delivery of possession of land, which authorises an enforcement officer to enter on the land and deliver possession of the land and appurtenances (e.g. houses, gardens and other fixtures) to the mortgagee (see CPR 2451 and 2452).

Once property is sold

Once a sale is completed the mortgagee has a duty to account to the mortgagor for the balance of the sale proceeds after repayment of the borrowed sum, outstanding interest, legal costs, real estate and sundry expenses.