A recent amendment to the Conveyancing Act provides a timely reminder to mortgagees of the duty to be discharged when exercising power of sale.

What's New?

Section 111A of the Conveyancing Act has been proclaimed to commence on 1 November 2011.

The section requires a mortgagee to take reasonable care to ensure that mortgaged land is sold for:

  • if the land has an ascertainable market value when it is sold-not less than its market value, or
  • in any other case-the best price that may reasonably be obtained in the circumstances.

A mortgagee who breaches the duty may be liable for damages.

What and who does it apply to?

The section applies to:

  1. a mortgagee/chargee of land owned by an individual or a corporation;
  2. an agent appointed by a mortgagee/chargee to sell the mortgaged/charged land in the same way as it applies to the mortgagee/chargee; and
  3. mortgages and charges regardless of the date of the mortgage or charge, but only in relation to a sale arising as a consequence of a default occurring after 1 November 2011.

Is it really all that new?

The duty is largely identical to that contained in section 420A of the Corporations Act, and is consistent with the general law.

What steps should a mortgagee take to help satisfy the duty?

There are a number of steps which a mortgagee should take to ensure that it does not breach the duty.

These include:

  1. Advertising - advertisements should contain all material details, be free of errors, be conducted for a reasonable period of time and in a variety of mediums (ie print, internet, signboard etc)
  2. Advice - ask the agent for recommendations as to the most appropriate method of sale, advertising and price.
  3. Valuation - get an independent valuation of the market value of the property.
  4. Supervision - mortgagees must diligently supervise their agents. Responsibility for the agent's failings will come home to roost with the mortgagee.

Conclusion

Whether or not mortgaged or charged property has been sold for market value will ultimately depend on the specific facts and circumstances of the sale.

Generally, where the Court is satisfied that the property has been properly advertised and the sale has been properly conducted, it will be inclined to treat the sale price as the best evidence of market value.

If the mortgagee can point to evidence that it has exercised reasonable care in conducting the sale, it will be in a strong position to refute any claim that it has breached its duty.

Sydney

Amber Warren

t (02) 9931 4897

e awarren@nsw.gadens.com.au

This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.