Caveat beware - help appreciated

[Pete011]

Hi

I have recently bought a residential property at public auction (in Victoria). The property had a couple of caveats. It turned out that the settlement was delayed because the vendor couldn't remove these caveats. In the meantime i found out that the vendor has ran out of money (not sure if he declared bankrupcy or not) and his home loan lender (a bank) has become involved and is negotiating to remove the caveats. This process has been taking significant amount of time. The latest update said that the caveators argue that the property was sold under the market value and the bank is currently in the process of getting the property valuation.

Not long ago i lodged a caveat myself as the purchaser of the property.

I am not quite sure what may happen if the property valuation come over/under the price I paid and what implications that may have on me.

I am not quite sure what the bank is trying to accomplish by getting the market valuation provided that the property was purchased at a public auction which determined the price on the day.

I am not quite sure how long the caveators can persist before they accept what they can get and remove their caveat.

I am wondering if anyone out there had similar experience or have an advice or views on this.

Many thanks

 

[Terryw]

You had better seek legal advice. You may be able to terminate the contract - and it may be a good idea to get out as this could drag on and get messier.

 

[barrister]

Very interesting scenario.

I can't really comment without more info ...

Did you pay a deposit, and if so was it to a real estate agent or solicitor ?

Have you been given a notice under s.27 of the Sale of Land Act in relation to the deposit ? If so you need to be careful to make sure that you will not be deemed to have authorised the release of the deposit to the vendor.

Do you have a copy of the caveats that have been lodged ?

If not you could do title searches to get them.

If you have the caveats, what is the interest that is claimed by the caveators?

Does the bank have a registered mortgage ?

Do you know whether the amount that the vendor owes to the Bank is more or less that the purchase price ?

 

[rugrat]

Just getting a tad confused. You make reference to 'owning' this property and having paid for it. Can you clarrify? Because obviously transfer of ownership (ie settlement) cannot occur until all caveats are removed.

 

[Pete011]

We purchased the property at public auction, but we haven't settled yet (so technically we haven't completed the sale).

The deposit is sitting in the trust account of a real estate agency (has not been released to the vendor)

The caveators are money lenders - the vendor apparently borrowed some money from them - not for the property.

The mortgage/secure lender is a bank.

Unfortunately i don't know how much the vendor owes and whether the money paid is enough to please the caveats.

Thanks for your comments, really appreciate it in this dificult situation.

Further comments/ideas/discussion is highly appreciated

 

[Pete011]

Very interesting scenario.

Re: Have you been given a notice under s.27 of the Sale of Land Act in relation to the deposit ? If so you need to be careful to make sure that you will not be deemed to have authorised the release of the deposit to the vendor.

This (above) is interesting. I am not familiar with law but my solicitor's legal advice/option was - because the settlement did not occur as the vendor was not able to settle in time - to issue the rescission notice and after 14 days if the vendor is still not able to settle then my deposit is returned to me.

Does this make sense?

 

[barrister]

I am relieved for your sake that the deposit has not been released.

If you are interested, section 27 of the Sale of Land Act is here:

http://www.austlii.edu.au/au/legis/vic/consol_act/sola1962100/s27.html

It essentially allows the vendor to serve a notice containing certain information, and if the purchaser does nothing, then the purchaser can be deemed to have authorised the release of the deposit.

But you obviously don't need to worry about that.

The advice you have received is correct. If you rescind the contract due to the vendor's default, then you are entitled to immediate return of the deposit moneys (see section 26(1)(b) of the Sale of Land Act)

However, if you do rescind the contract then you will be also by giving up your right to enforce the contract.

If you are willing to give up the property and move on, then recission would probably be the best option.

However, if you really want the property you could hang in there and wait to see what the bank decides to do.

If the bank's valuation is at or below the price you bid, then the bank may want to proceed with the sale to you and may be able to convince the caveators to also proceed with the sale. The is because, whilst a sale to you might mean that the caveators get less than what they are owed, they might be getting more than if the bank re-possessed and re-sold.

If the bank's valuation is above the price you bid (plus the costs of the bank re-possessing and re-selling), then the bank and the caveators may not want to proceed with the sale to you. Unfortunately in that scenario it would be very difficult (ie expensive and ultimately maybe impossible) for you to force them to do so.

 

[Pete011]

I am relieved for your sake that the deposit has not been released.

If you are interested, section 27 of the Sale of Land Act is here:

http://www.austlii.edu.au/au/legis/vic/consol_act/sola1962100/s27.html

It essentially allows the vendor to serve a notice containing certain information, and if the purchaser does nothing, then the purchaser can be deemed to have authorised the release of the deposit.

But you obviously don't need to worry about that.

The advice you have received is correct. If you rescind the contract due to the vendor's default, then you are entitled to immediate return of the deposit moneys (see section 26(1)(b) of the Sale of Land Act)

However, if you do rescind the contract then you will be also by giving up your right to enforce the contract.

If you are willing to give up the property and move on, then recission would probably be the best option.

However, if you really want the property you could hang in there and wait to see what the bank decides to do.

If the bank's valuation is at or below the price you bid, then the bank may want to proceed with the sale to you and may be able to convince the caveators to also proceed with the sale. The is because, whilst a sale to you might mean that the caveators get less than what they are owed, they might be getting more than if the bank re-possessed and re-sold.

If the bank's valuation is above the price you bid (plus the costs of the bank re-possessing and re-selling), then the bank and the caveators may not want to proceed with the sale to you. Unfortunately in that scenario it would be very difficult (ie expensive and ultimately maybe impossible) for you to force them to do so.

Barrister - Thanks for your comments

Re: bank' valuation

I suspect what is happening is that the valuation today is above the sale price (at the time of auction) and it is not in the best interest of the caveators and possibly the bank to release the property.

Not long ago the vendor's lawyer did provide in writing that the bank agreed to sell the place which leaves the caveators as the source of delay.

Is it possible that caveators can be in such strong position to be able to blackmail the bank (secure lender)? I would think not, but appears to be that way based on what i know.

It appears that the property law is much more favourable to the caveators than the purchaser.

Does this mean that the vendor of any property (with or without caveats)can choose not to settle (after signing the contract of sale) if lets say the property price increases significantly between the sale date and the settlement date?

I wonder if i am to rescind, what compensation (if any) am i entiteld to?
What comes to mind....
interest in deposit,
foregone capital gain,
conveyancing fees
rent
rescission notice fees

What do you think? What compensation is reasonable to seek? What sum is reasonable for court? Would love to hear from people who have gone through this or have some knowledge/experience.

Many Thanks!!!

ps. Barrister thanks for your reply

 

[Pete011]

I am relieved for your sake that the deposit has not been released.

If you are interested, section 27 of the Sale of Land Act is here:

http://www.austlii.edu.au/au/legis/vic/consol_act/sola1962100/s27.html

It essentially allows the vendor to serve a notice containing certain information, and if the purchaser does nothing, then the purchaser can be deemed to have authorised the release of the deposit.

But you obviously don't need to worry about that.

The advice you have received is correct. If you rescind the contract due to the vendor's default, then you are entitled to immediate return of the deposit moneys (see section 26(1)(b) of the Sale of Land Act)

However, if you do rescind the contract then you will be also by giving up your right to enforce the contract.

If you are willing to give up the property and move on, then recission would probably be the best option.

However, if you really want the property you could hang in there and wait to see what the bank decides to do.

If the bank's valuation is at or below the price you bid, then the bank may want to proceed with the sale to you and may be able to convince the caveators to also proceed with the sale. The is because, whilst a sale to you might mean that the caveators get less than what they are owed, they might be getting more than if the bank re-possessed and re-sold.

If the bank's valuation is above the price you bid (plus the costs of the bank re-possessing and re-selling), then the bank and the caveators may not want to proceed with the sale to you. Unfortunately in that scenario it would be very difficult (ie expensive and ultimately maybe impossible) for you to force them to do so.

Barrister - Thanks for your comments

Re: bank' valuation

I suspect what is happening is that the valuation today is above the sale price (at the time of auction) and it is not in the best interest of the caveators and possibly the bank to release the property.

Not long ago the vendor's lawyer did provide in writing that the bank agreed to sell the place which leaves the caveators as the source of delay.

Is it possible that caveators can be in such strong position to be able to blackmail the bank (secure lender)? I would think not, but appears to be that way based on what i know.

It appears that the property law is much more favourable to the caveators than the purchaser.

Does this mean that the vendor of any property (with or without caveats)can choose not to settle (after signing the contract of sale) if lets say the property price increases significantly between the sale date and the settlement date?

I wonder if i am to rescind, what compensation (if any) am i entiteld to?
What comes to mind....
interest in deposit,
foregone capital gain,
conveyancing fees
rent
rescission notice fees

What do you think? What compensation is reasonable to seek? What sum is reasonable for court? Would love to hear from people who have gone through this or have some knowledge/experience.

Many Thanks!!!

ps. Barrister thanks for your reply

 

[Terryw]

There are various levels of interests in property. The rules about priority of interests are complex, but generally a registered interest takes priority over an unregistered one. 1st mortgages are higher than second mortgages etc.

A caveat is just a notification of someone's interest.

If you exchange contracts on a property then you have an interest. It is wise to protect this interest by lodging a caveat, even though settlement is a few weeks away, because someone else could beat you to the priority by lodging their interest first. You have done that but the others beat you too it.

This happened in Black v Garnot a few years ago. Someone lodged a writ on the property and a caveat hours before settlment and they took priority. The purchasers could not settle.

In your case there is a first mortgage over the property. This has priority and they will only, likely, release it if they get their money back in full.

There is a duty for a bank taking possession to get as much as they can for the sale of the property, so now the other caveators may have a claim. It is not blackmail but a dispute. They probably have a valuation saying the property was worth X and it has been sold for less than this amount.

Not sure about the damages. What does it say in your contract? You will be the one rescinding and may not be entitled to anything. Even if you are there is probably little likelihood of getting anything as there is unlikely to be anything left.

 

[Pete011]

There are various levels of interests in property. The rules about priority of interests are complex, but generally a registered interest takes priority over an unregistered one. 1st mortgages are higher than second mortgages etc.

A caveat is just a notification of someone's interest.

If you exchange contracts on a property then you have an interest. It is wise to protect this interest by lodging a caveat, even though settlement is a few weeks away, because someone else could beat you to the priority by lodging their interest first. You have done that but the others beat you too it.

This happened in Black v Garnot a few years ago. Someone lodged a writ on the property and a caveat hours before settlment and they took priority. The purchasers could not settle.

In your case there is a first mortgage over the property. This has priority and they will only, likely, release it if they get their money back in full.

There is a duty for a bank taking possession to get as much as they can for the sale of the property, so now the other caveators may have a claim. It is not blackmail but a dispute. They probably have a valuation saying the property was worth X and it has been sold for less than this amount.

Not sure about the damages. What does it say in your contract? You will be the one rescinding and may not be entitled to anything. Even if you are there is probably little likelihood of getting anything as there is unlikely to be anything left.

Thanks Terryw

I also have a feeling that even if i am to seek compensation i wouldn't really get anything.

It appears to me that even though I did everything by the book, waited for almost six months for the "dispute to get resolved" will be the one that walks away with nothing except for lessons learnt.

I am not pleased about it but it's time to move on as i don't believe that there is enough willingness to resolve the dispute and the status quo has been very exausting.

Thanks.

 

[Bill.L]

Hi all,

Very tricky one here..

Depending on your situation, as to how long you can hold, you have an interest in this property by purchasing at an open auction and signing contracts, plus the caveat you placed on said property.

For any other party to relinquish/sell said property, they need you to remove caveat. This will probably cost them...

If you are not in desperate situation to take possession of property, then it currently costs nothing to hold in this situation, eg no loan. Why not let process be drawn out?? Most of the time thinking wayyyy outside the square can help.

bye

 

[barrister]

Unfortunately for Pete011, it will probably not cost the bank anything to have his caveat (or the other caveats) removed.

If the Bank exercises their power of sale, then s.91(2A) of the Transfer of Land Act 1958 would specifically allow the new purchaser to register the transfer despite the other caveats. And once the new purchaer lodges the transfer for registration, then s.90(1) provides that Pete011's caveat will lapse after 30 days unless Pete011 issues Court proceedings pursuant to s.90(2).

However, it will cost money for the Bank to exercise their power of sale (both legal costs and the costs of any subsequent sale, advertising, agents fees etc). Ultimately, if the property sells for less than what is owed to the Bank and the other caveators, then the other caveators may be wearing those costs. Therefore, if the valuation is not significantly higher than the price the Pete011 agreed to pay, then it may be better for the Bank and the caveator to sell to Pete011.

What is troubling the black letter lawyer in me is that the equitable interest of any subsequent purchaser would be later than (and of lower priority to) the equitable interest of Pete011. So why couldn't Pete011 seek an injunction to preserve his equitable interest vis-a-vie the subsequent purchaser?

My pragmatic side says that there is no way that a Court would prevent a registered mortgagee from selling a property but I am not sure how a Court would rationalise the fact that this means Pete011's interest is obliterated in favour of an equitable interest that was created after his.

Perhaps I will read the High Court decision in Black v Garnock again one day to try to get my head around that one. I know that there was a great deal of discussion in that case about the failure of the purchaser to put on a caveat, so at least Pete011 is in a better position in that regard.

 

[Pete011]

Unfortunately for Pete011, it will probably not cost the bank anything to have his caveat (or the other caveats) removed.

If the Bank exercises their power of sale, then s.91(2A) of the Transfer of Land Act 1958 would specifically allow the new purchaser to register the transfer despite the other caveats. And once the new purchaer lodges the transfer for registration, then s.90(1) provides that Pete011's caveat will lapse after 30 days unless Pete011 issues Court proceedings pursuant to s.90(2).

However, it will cost money for the Bank to exercise their power of sale (both legal costs and the costs of any subsequent sale, advertising, agents fees etc). Ultimately, if the property sells for less than what is owed to the Bank and the other caveators, then the other caveators may be wearing those costs. Therefore, if the valuation is not significantly higher than the price the Pete011 agreed to pay, then it may be better for the Bank and the caveator to sell to Pete011.

What is troubling the black letter lawyer in me is that the equitable interest of any subsequent purchaser would be later than (and of lower priority to) the equitable interest of Pete011. So why couldn't Pete011 seek an injunction to preserve his equitable interest vis-a-vie the subsequent purchaser?

My pragmatic side says that there is no way that a Court would prevent a registered mortgagee from selling a property but I am not sure how a Court would rationalise the fact that this means Pete011's interest is obliterated in favour of an equitable interest that was created after his.

Perhaps I will read the High Court decision in Black v Garnock again one day to try to get my head around that one. I know that there was a great deal of discussion in that case about the failure of the purchaser to put on a caveat, so at least Pete011 is in a better position in that regard.

Thanks Barrister

I have decided to back out of the deal and instructed the lawyer to issue the rescission notice. After 6 months wait i feel bitter about it and relieved about moving on. The worst thing is that no one is responsible for this debacle.

The vendor is not bankrupt as we thought at first - i still don't understand why he can't sell the property - he alleges that the Bank's dispute with caveators is what is stopping the sale. He also blames his conveyancers for not keeping him informed and not doing their job.

I hope that this rescission notice will reach his bank and may lead to something productive.

I am not sure what happens when the rescission notice ends - what should i do with the caveat that i lodged? What expenses are reasonable to seek compensation for? Is there anything else that can be done?

Thanks all for your useful comments and really appreciated.


♦

 

[rugrat]

Black v Garnet was different in the fact that the purchaser had failed to lodge a caveat, and the caveat lodged on the property only happened in the 2hrs? prior to payment (intended settlement) but after the title search occurred. The important things to come out of this case was the purchaser's responisbility to lodge a caveat over the property in order to protect their interests and the need to perform a title search immediately prior to settlement, rather then a couple of hours earlier.

In Pete011 situation, he has already lodged a caveat to protect his interest. No w it is a matter of him deciding as to whether he is willing to wait (and don't be surprised if there is a significant wait - it can become a stalemate situation sometimes with none of the parties willing to budge) and see what happens. Or he can take action to rescind the contract.

If you do decide to rescind the contract Pete011, it is IMHO unlikely that you would be able to claim any kind of damages. Of course, I am not a practicing lawyer, nor do I know the particulars of your situation, but your solicitor would be able to advise you of this.

 

[Ms Jade]

I understand this is now a dead issue for Pete if he's rescinding the contract, but if the sale price covers the first mortgage, why wouldn't the bank agree to the sale? The thing I don't understand is that I thought you needed to have an interest in the property to lodge a valid caveat. If the other creditors are unsecured I would have thought that their caveats could be removed?

Edit: Just remembered that uninterested parties can lodge a caveat if the owner agrees, which I'm guessing this vendor did.

BTW, the injustice of this situation really irks me. I would have more fight in me than you, Pete, but perhaps after 6 mths you're jack of it & understandably so.

 

[Pete011]

Yes - it is injustice - i have given all i got in me and don't think i could have done more.

Thanks for your comments, advice and support.

The rescission notice expires later next week - unless some miracle happens that's going to be it!!!!

Will keep you posted.

Thanks