This subtopic deals with the remedies a mortgagee can seek for default by a mortgagor under a legal or equitable mortgage over Torrens system land (enforcement of chattel mortgages is dealt with in the personal property securities subtopic). The assumption in this subtopic is that the National Credit Code does not regulate the mortgage — mortgages regulated by the Code are dealt with under the Consumer mortgages subtopic.

Mortgages typically set out a large number of actions or situations that constitute default by the mortgagor, but the most common forms of mortgage default involve failure to pay money by the date it is due (whether interest or principal). Sometimes a mortgagee will wish to ignore minor defaults. In most jurisdictions however if the mortgage expires without repayment of the principal and the mortgagee accepts interest for 3 months thereafter, then if the mortgage is not otherwise in default, the mortgagee loses the right to enforce the mortgage except by giving 3 months' notice.

After a default occurs and the mortgagee wishes to enforce the mortgage, usually the mortgagee will need to commence legal proceedings, even if it is motivated more by a desire to compel the mortgagor to pay the debt owed rather than an intent to actually sell the land. Such proceedings typically involve seeking possession of the land and obtaining a monetary judgment, although monetary judgments are often obtained but seldom enforced.

Many mortgage enforcement proceedings are not defended, and culminate in the issuing of a default judgment and a writ of possession. Often the mortgagor will seek a stay of a writ of possession to obtain time for refinance, but if no refinance has occurred in due course the Sheriff’s Office (the enforcement arm of the courts) will take possession pursuant to the writ and provide that possession to the mortgagee. The mortgagee will then advertise and sell the land and distribute the proceeds according to the law (hopefully satisfying the debt due to it in the process). See Default and its consequences.

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 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. See Obtaining possession without court proceedings.

Registered mortgages are typically enforced by commencing proceedings for possession, often with an additional claim for a monetary judgment.

In New South Wales, unless the mortgage says otherwise, there is no requirement to serve a default notice under s 57(2) of the Real Property Act 1900 (NSW) in order to sue for possession of land, although in some cases such a notice is necessary in order for the mortgagee to accelerate the repayment of principal for the purpose of claiming a monetary judgment for the entirety of the debt secured by the mortgage (if the principal has not already fallen due because of expiry of the term). In most cases, service of a s 57(2)(b) notice is, however, a precondition for the mortgagee exercising its power of sale.

In Victoria, service of a s 76 notice under the Transfer of Land Act 1958 (Vic) is a precondition to the exercise of the mortgagee’s power of sale, assuming that there is a contractual requirement in the mortgage or loan agreement to serve a demand notice upon the mortgagor prior to commencing proceedings for possession.

In Queensland, registered mortgages are generally enforced by a mortgagee exercising its power of sale, whether that be pursuant to an express power in the mortgage instrument, or the mortgagee’s implied power under s 83 of the Property Law Act 1974 (Qld). To exercise its power of sale, the mortgagee must serve a notice on the mortgagor under s 84 of the Property Law Act 1974 (Qld) (see the Default guidance note) requiring payment of the amount owing that caused the default. The mortgagor must then remain in default of payment for 30 days from the date of service of the notice.

Furthermore, under s 78(2) of the Land Title Act 1994 (Qld), subject to the terms of the mortgage, if there is a default by the mortgagor, the mortgagee is entitled to take possession of the property by:

• entering into possession, provided that s 70 of the Criminal Code Act 1899 (Qld) is not contravened, that is, by not causing a fear of or threatening unlawful violence;

• receipt of the rents and profits; or

• obtaining a court order for possession.

Similar to the situation in Victoria, in Western Australia, s 108 of the Transfer of Land Act 1893 (WA) requires a notice to be served that complies with ss 106–107 of the Transfer of Land Act 1893 (WA), assuming that there is a contractual requirement in the mortgage or loan agreement to serve a demand notice upon the mortgagor prior to commencing proceedings for possession.

In South Australia, under s 132 of the Real Property Act 1886 (SA), a notice of default must be served on the mortgagor and, under s 133 of the Real Property Act 1886 (SA), the power of sale can only be exercised if the default continues for one month or such other period as is specified in the mortgage. This period may be (and usually is) abridged by express stipulation within the mortgage document.

In addition, under s 55A of the Law of Property Act 1936 (SA), some powers against mortgagors, including acceleration clauses, cannot be exercised or enforced unless:

• the mortgagee has served on the mortgagor a notice in writing:

• where requirements are made of the mortgagor in the notice, the mortgagor has failed to comply with those requirements.

Section 55A only applies to mortgages of land where:

• the mortgagor is a natural person, and

• the land is appropriated for domestic or agricultural use.

Land will be deemed to be appropriated for domestic or agricultural use unless the mortgagor has made a statutory declaration that during the currency of the mortgage:

• no part of the land is to be used as a place of dwelling for the mortgagor's own personal occupation; and

• in the case of land exceeding two hectares in area, no part of the land is to be used by the mortgagor for the business of primary production.

In Tasmania, the procedure in the case of a default notice and a power of sale is provided under s 77 of the Land Titles Act 1980 (Tas).

In the Northern Territory, service of a s 89(2) prescribed notice under the Law of Property Act (NT) is a precondition to the exercise of the mortgagee's power of sale. Mortgages are generally enforced by a mortgagee exercising its power of sale, whether that be pursuant to an express power in the mortgage instrument, or the mortgagee's implied power under s 86(a) of the Law of Property Act (NT). To exercise its power of sale, the mortgagee must serve a notice on the mortgagor under s 89(2) of the Law of Property Act (NT) (see the Default guidance note) requiring payment of the amount owing. The mortgagor must then remain in default of payment for the required period from the date of service of the notice.

In the Australian Capital Territory (ACT), notice must be served under s 93(2) of the Land Titles Act 1925 (ACT) as a pre-condition to the mortgagee exercising certain rights in respect of a registered mortgage. In order for notice to be effective, default in respect of payment of a sum or observance of a covenant must have existed for 1 month: s 93(2) . If the default continues for a further month after the service of the notice, the mortgagee may sell all of the interest of the mortgagor: s 94(1) . The giving of valid notice under s 93 is also a precondition to the exercise of the right to enter into possession under s 96 .

There is no need for a registered mortgagee to seek from the court orders for sale of the security property as the mortgagee has statutory powers of sale. See Enforcing a registered mortgage.

An unregistered mortgagee has no statutory power of sale and so will typically enforce its mortgage by seeking orders that the court sell the land and appoint the mortgagee as the court’s agent for that purpose. Such “judicial sale” proceedings are best combined with a suit for specific performance of the mortgagee’s express or implied contractual rights to take possession of the security in the event of default.

Higher priority interest holders (typically registered mortgagees) need to be joined as parties to judicial sale proceedings in order for the proceedings to be properly constituted. If prior mortgagees oppose the making of the orders and assert their prior interest to sell the property, that will likely prevent the judicial sale orders from being made, although at least the unregistered mortgagee will have the satisfaction of knowing that the security property will be sold. See Enforcing an unregistered mortgage.

A mortgagee who has a mortgage over a part-share in land (for example over the interest of only one of two joint tenants or tenants in common) cannot enforce its mortgage by the usual means of possession or judicial sale proceedings, but should instead make an application under s 66G of the Conveyancing Act 1919 (NSW) (and equivalent provisions for other jurisdictions) for the appointment of trustees for sale of the property. The mortgagee can make such an application because the mortgagee of a co-owner’s share in land is deemed under the Conveyancing Act 1919 (NSW) to be itself a co-owner of that land. See Enforcing a mortgage over a part-share in land.

New South Wales

In NSW, the Farm Debt Mediation Act 1994 (NSW) prevents a mortgagee, holding a mortgage over farm property for a debt incurred to assist in a farming operation, from enforcing its mortgage without first giving the farmer an opportunity to mediate. If the debt is a farm debt, the mortgagee must issue a notice under s 8 of the Conveyancing Act 1919 (NSW) at least 21 days before commencing any enforcement activity. The farmer can then initiate mediation which can delay enforcement for three months if the mortgagee mediates in good faith, and six months if the mortgagee refuses to mediate. See Farm mortgages.

Victoria

In Victoria, the Farm Debt Mediation Act 2011 (Vic) regulates farm debt disputes by requiring a creditor to provide a farmer with the option to mediate before taking possession of property or other enforcement action under a farm mortgage. The mortgagee must issue a written notice to the farmer at least 21 days before commencing any enforcement activity. The farmer can then request mediation. See Farm mortgages.

Queensland

In Queensland, farm mortgages are regulated by the Farm Business Debt Mediation 2017 (Qld) Queensland Farm Finance Strategy (Strategy) and the Queensland Farm Debt Mediation Scheme Protocols (Mediation Protocols) on 1 July 2017. Now, the Queensland Rural and Industry Development Authority is responsible for administering the mediation process. See Farm mortgages.

Western Australia

In Western Australia, there is a voluntary mediation scheme rather than a legislative scheme. The process is administered by the Rural Land Sale Liaison Committee. Further information can be obtained from the Department of Agriculture and Food WA website. See Farm mortgages.

South Australia

In South Australia, under s 55A of the Law of Property Act 1936 (SA), additional requirements regarding the service of notices of default apply before mortgages over agricultural land can be enforced. See Farm mortgages.

Tasmania

In Tasmania, mortgages involving farms are not yet subject to dedicated statutory regulation. See Farm mortgages.

Northern Territory

In the Northern Territory, there is currently no concept of a farm mortgage.

Australian Capital Territory

In the ACT, there is currently no concept of a farm mortgage.

For further information on farm mortgages, see the Farm mortgages guidance note in this subtopic. Also consult the Mortgages guidance note within the Mortgages and leases subtopic in the Rural transactions topic.

New South Wales

Enforcement of a mortgage often culminates in a mortgagee sale. Normally this is effected by the mortgagee exercising its statutory power of sale, but sometimes the sale is a judicial sale by the mortgagee as the agent of the court, a sale by the mortgagee as attorney of the mortgagor, or the sale by the mortgagee’s receiver as agent for the mortgagor company.

Normally a mortgagee seeking to exercise its statutory power of sale must first issue a valid statutory notice (such as a notice under s 57(2)(b) of the Real Property Act 1900 (NSW)) and wait for it to expire before obtaining power to sell the security land, although in some limited circumstances such notices can be dispensed with. Some mortgages contain other preconditions that a mortgagee must also satisfy prior to sale. There is no legal requirement for a mortgagee to have possession of a property before selling it, although in most cases possession is required for practical reasons, in order to ensure a smooth marketing campaign and to allow vacant possession to be provided on completion.

Mortgagees traditionally only had a duty to act in good faith in selling the security, but s 420A  of the Corporations Act 2001 (Cth) has imposed a statutory duty of care on mortgagees and receivers selling the property of a corporation, and the new s 111A of the Conveyancing Act 1919 (NSW) has introduced, as of 1 November 2011, a similar duty with respect to mortgages in NSW.

Proceeds of sale of land must be paid in order of priority of interests in the land, and the residue then paid to the mortgagor. If there is a dispute as to the payments to be made, then normally the mortgagee (in its capacity as trustee of the money) will pay any surplus funds into the court so the mortgagee does not need to risk choosing incorrectly when evaluating the competing claims. See Mortgagee sale.

Victoria

Enforcement of a mortgage often culminates in a mortgagee sale. Normally this is effected by the mortgagee exercising its statutory power of sale, but sometimes the sale is a judicial sale by the mortgagee as the agent of the court, a sale by the mortgagee as attorney of the mortgagor, or the sale by the mortgagee’s receiver as agent for the mortgagor company.

Normally a mortgagee seeking to exercise its statutory power of sale must first issue a valid statutory notice under s 76 of the Transfer of Land Act 1958 (Vic) and wait for it to expire before obtaining power to sell the security land, although in some limited circumstances such notices can be dispensed with. Some mortgages contain other preconditions that a mortgagee must also satisfy prior to sale. There is no legal requirement for a mortgagee to have possession of a property before selling it, although in most cases possession is required for practical reasons, in order to ensure a smooth marketing campaign and to allow vacant possession to be provided on completion.

Mortgagees traditionally only had a duty to act in good faith in selling the security, but s 420A of the Corporations Act 2001 (Cth) has imposed a statutory duty of care on mortgagees and receivers selling the property of a corporation. In addition, s 77 of the Transfer of Land Act 1958 (Vic) requires a mortgagee to act in good faith and have regards to the interests of the mortgagor.

Proceeds of sale of land must be paid in order of priority of interests in the land, and the residue then paid to the mortgagor. If there is a dispute as to the payments to be made, then normally the mortgagee (in its capacity as trustee of the money) will pay any surplus funds into the court so the mortgagee does not need to risk choosing incorrectly when evaluating the competing claims. See Mortgagee sale.

Queensland

Registered mortgages are generally enforced by mortgagee’s exercising its power of sale, whether that be pursuant to an express power in the mortgage instrument, or the mortgagee’s implied power under s 83 of the Property Law Act 1974 (Qld). To exercise its power of sale, the mortgagee must serve a notice on the mortgagor under s 84 of the Property Law Act 1974 (Qld) (PLA Form 4 Version 1 — Notice of Exercise of Power of Sale from the Queensland Courts website) requiring payment of the amount that caused the default. The mortgagor must then remain in default of payment for 30 days from the date of service of the notice. Section 84 of the Property Law Act 1974 (Qld) applies despite any stipulation to the contrary in the mortgage: s 84(3) .

Section 85(1) of the Property Law Act 1974 (Qld) imposes a statutory duty on the mortgagee to take reasonable care to ensure that the property is sold at market value. Note, however, that the obligation of the mortgagee is to use reasonable care to obtain market value. There is no absolute obligation to ensure that market value is obtained: Tyler v Custom Credit Corp Ltd (In liq) at [156]. See Mortgagee sale.

Western Australia

Before a registered mortgagee can exercise its statutory power of sale, the mortgagor must be in default and the mortgagee must serve a notice on the mortgagor requiring the default to be remedied. The statutory power becomes exercisable if the default is not remedied within the relevant period of time (one month unless otherwise stipulated or in the case of a “demand” mortgage).

In Western Australia, the standard of care of a selling mortgagee is not prescribed by statute like it is in some other jurisdictions. The mortgagee must comply with the equitable duty of good faith however.

See Mortgagee sale.

South Australia

In South Australia, in respect of Torrens system land, under s 132 of the Real Property Act 1886 (SA), a notice of default must be served on the mortgagor and, under s 133 of the Real Property Act 1886 (SA), the power of sale can only be exercised if the default continues for one month or such other period as is specified in the mortgage. This period may be (and usually is) abridged by express stipulation within the mortgage document.

See Mortgagee sale.

Tasmania

Mortgagee sale provisions for Torrens land are provided under the Land Titles Act 1980 (Tas).

The process that the mortgagee must follow in order for it to exercise its statutory power to take possession and sell is as follows:

• Issue a notice of default under s 77 of the Land Titles Act 1980 (Tas).

• Action for possession is commenced in the Supreme Court once the default notice period has expired and debt remains outstanding.

• Judgment is then entered.

• A writ of possession is issued to appoint a Sherriff or Bailiff to evict the mortgagor and deliver vacant possession.

The Land Titles Act 1980 (Tas) provides that a mortgagee under s 78 has certain powers in order to achieve the best price for the property. The same section also provides steps for appropriation of funds once the property has been sold.

See Mortgagee sale.

Northern Territory

Registered mortgages are generally enforced by mortgagee’s exercising their power of sale, whether that be pursuant to an express power in the mortgage instrument, or the mortgagee’s implied power under s 86(a) of the Law of Property Act 2000 (NT). To exercise its power of sale, the mortgagee must serve a prescribed notice on the mortgagor under s 89(2) requiring payment of the amount. The mortgagor must then remain in default for 30 days from the date of service of the notice, or any other period of not less than one day as agreed between the parties, if the default relates to payment of the principal money or interest. If the default relates to the observance or fulfilment of a provision in the instrument of mortgage, then the default must only continue for 14 days before a mortgagee may exercise its power of sale. Section 89 of the Law of Property Act 2000 (NT) applies despite any stipulation to the contrary in the mortgage: s 89(3) .

See Mortgagee sale.

Australian Capital Territory

Registered mortgages in the ACT may be enforced through exercise of the power of sale. This requires effective notice under s 93 of the Land Titles Act 1925 (ACT), which in turn requires a default that has existed for one month, and then a further month of continued default after the giving of notice. The proceeds of a sale are to be applied:

• first, in the payment of sale expenses;

• second, in payment of monies owing to the mortgagee;

• third, to the payment of subsequent mortgages or encumbrances, and

• finally, to any surplus to the mortgagor: s 94(4) of the Land Titles Act 1925 (ACT).

Section 94(5) provides that the title of the transferee that arises under a professed exercise of the power of sale shall not be impeachable on the grounds of any defect in notice or because grounds for sale have not in fact arisen. The mortgagor’s cause of action is against the person exercising the power of sale rather than the transferee. The relevant form is the TMPS — Transfer by mortgagee under power of sale (Form 018) from Access Canberra.

See Mortgagee sale.