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an important caveat on caveat-based lending in queensland

15 June 2021
cathy russo
Read Time 3 mins reading time

With interest rates at an all time low, private non-Bank mortgage lending is a growing destination for investor funds in Australia. With the increasing competition in this area, private lenders are increasingly trying to differentiate themselves with more creative security structures, that provide for something less than first ranking security to allow for faster access to funds. However, the security of these investments require proper advice and documentation.

A particular issue we encounter in Queensland is non-bank lenders wanting to make shorter term loans secured only by a caveat over the intended security property. In States other than Queensland, this may be an acceptable security solution. However, this is not usually the case in Queensland. Whilst normally a caveat lodged with the Queensland Registrar of Titles simultaneously with consent to the caveat from the registered owner of the land does not lapse within the usual lapsing period of up to 3 months, an unregistered (equitable) mortgage is an exception to this general rule.

This is because the Queensland Titling legislation takes the position that the correct form of security is a mortgage and so, a caveat protecting an equitable mortgage will always be subject to the lapsing rules (see section 122 (2) of the Land Title Act 1994). Accordingly, lenders need to be aware that they will need to structure these loans carefully in Queensland to adequately protect their position.

There are a number of other quirks to note with second mortgage lending in Queensland, including:

  1. In Queensland, technically a lender is able to register a second mortgage without producing a first mortgagee consent or title (and that default cannot be relied upon by the first mortgagee to exercise certain powers such as a right of re-entry or acceleration (see section 80 (4) o the Property Law Act 1974)).
  2. Practically, if a borrower seeks consent from its first mortgagee, or the second registered mortgagee gives notice of its interest in order to take advantage of the tacking and priority rules in section 82 of the Property Law Act 1974, any consent will likely be conditional upon a deed of priority and subordination which may ultimately put a second mortgagee in a lower priority position than it was anticipating.
  3. Most private lenders do not hold a credit licence and instead seek to limit their investments to loans not covered by the National Credit Code. Considerable care and analysis need to be taken to ensure a proposed loan does not fall within the ambit of this legislation.
  4. Lenders ‘pooling’ funds into lending trusts may in itself be regulated under the Corporations Act 2001 and trustees, managers and investors need to ensure they obtain appropriate advice.

Macpherson Kelley regularly represents private and non-bank lenders in all jurisdictions of Australia. If you require advice, please contact Cathy Russo, Managing Principal Lawyer, Queensland.

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an important caveat on caveat-based lending in queensland

15 June 2021
cathy russo

With interest rates at an all time low, private non-Bank mortgage lending is a growing destination for investor funds in Australia. With the increasing competition in this area, private lenders are increasingly trying to differentiate themselves with more creative security structures, that provide for something less than first ranking security to allow for faster access to funds. However, the security of these investments require proper advice and documentation.

A particular issue we encounter in Queensland is non-bank lenders wanting to make shorter term loans secured only by a caveat over the intended security property. In States other than Queensland, this may be an acceptable security solution. However, this is not usually the case in Queensland. Whilst normally a caveat lodged with the Queensland Registrar of Titles simultaneously with consent to the caveat from the registered owner of the land does not lapse within the usual lapsing period of up to 3 months, an unregistered (equitable) mortgage is an exception to this general rule.

This is because the Queensland Titling legislation takes the position that the correct form of security is a mortgage and so, a caveat protecting an equitable mortgage will always be subject to the lapsing rules (see section 122 (2) of the Land Title Act 1994). Accordingly, lenders need to be aware that they will need to structure these loans carefully in Queensland to adequately protect their position.

There are a number of other quirks to note with second mortgage lending in Queensland, including:

  1. In Queensland, technically a lender is able to register a second mortgage without producing a first mortgagee consent or title (and that default cannot be relied upon by the first mortgagee to exercise certain powers such as a right of re-entry or acceleration (see section 80 (4) o the Property Law Act 1974)).
  2. Practically, if a borrower seeks consent from its first mortgagee, or the second registered mortgagee gives notice of its interest in order to take advantage of the tacking and priority rules in section 82 of the Property Law Act 1974, any consent will likely be conditional upon a deed of priority and subordination which may ultimately put a second mortgagee in a lower priority position than it was anticipating.
  3. Most private lenders do not hold a credit licence and instead seek to limit their investments to loans not covered by the National Credit Code. Considerable care and analysis need to be taken to ensure a proposed loan does not fall within the ambit of this legislation.
  4. Lenders ‘pooling’ funds into lending trusts may in itself be regulated under the Corporations Act 2001 and trustees, managers and investors need to ensure they obtain appropriate advice.

Macpherson Kelley regularly represents private and non-bank lenders in all jurisdictions of Australia. If you require advice, please contact Cathy Russo, Managing Principal Lawyer, Queensland.