Adelaide Bank v Carnemolla [2008] NSWSC 1117

In this case Associate Justice Harrison struck out the defence and entered judgment on 31 July 2008 noting:

… the defendants as at today owe the sum of $987,057.71, and the value of both properties together will realise an estimate of between $560,000 and $660,000. In other words, there is a large shortfall.

The case was later re-opened before the same Judge and a Contracts Review Act defence was proposed based on the broker being an unconscionable agent of the lender because he knew they could not afford the loan etc; etc. Her Honour set aside judgment so the Defence could be run.

The problem is that even if such a defence succeeded the most the borrowers could hope for would be some remission of the interest. The case law makes it plain that borrowers cannot make a windfall gain and escape without paying back the principal (unless it was stolen by a third party). That being the law with such a large shortfall should the borrowers succeed they stand to gain nothing.

Her Honour commented:

As there is little equity in the property, it is in both parties’ interests if these proceedings are heard and determined as soon as possible. Hence, I grant expedition.

With due respect to Her Honour these words are clearly disingenuous. Firstly Her Honour previously found there was no equity in the property (in fact a large shortfall – see above). Secondly as the Bank will ultimately win in the end the only reason to set aside judgement is to delay the matter. Her Honour made that clear by;

  1. Confining her orders to one of two units, being the one the family were living in.
  2. Not ordering that the defence be filed within 14 days as volunteered but merely returning the matter to the Registrar’s list.
  3. Basing her decision on the following evidence, only some of which could remotely be argued to be relevant to the legal issues raised in the proposed defence:
  • The family is in dire circumstances
  • The husband has a faraway look in his eyes and repeats himself often.
  • The husband was diagnosed with schizophrenia
  • The husband is taking a number of medications, including an antipsychotic mediation.
  • The wife receives treatment for anxiety and depression
  • The son has an intellectual disability and is only able to utter short sentences, such as “water” when he is thirsty.
  • The son is now 33 years of age but the mental age of a 10 year old.
  • They have tried sending him to speech therapy session and other remedial treatment but unfortunately, he cannot improve very much.
  • The daughter was diagnosed with bipolar disorder as well as schizophrenia, and takes Ativan for anxiety and Risperdal to treat her psychosis. Due to mental illness she is also on a disability pension.
  • The family’s psychiatrist, expressed his concerns about the extreme distress that the family would likely suffer if they were forced out of their family home.

There is no doubt compassion has its place in society but it is not much good in a judge. So often when a judge makes a compassionate decision it is false compassion. This is because it ultimately makes more people suffer more than the short term step that was taken.

For example compassion for violent drug offenders, letting them off with a warning, causes much more misery inflicted on the families of future innocent victims than the drug  offender would have suffered in the slammer. Likewise in the mortgage arena many lenders read these cases and mark the compassionate decisions. They see proceedings commenced in October 2007 (these proceedings) no closer to resolution in October 2008. In many cases they see lenders who have ventured their capital lose it or face vast shortfalls and be unable to sell the property. They see this and they decide to not to risk their capital on such an uncertain undertaking. The net effect is that commerce is stifled. Mankind has been taught by stern experience over and over again that for commerce to flourish:

  1. Property rights must be enforced,
  2. The law must give certainty of outcome,
  3. The Rule of Law must be prevail over compassion.

It is clear that the fact a 33 year old intellectually disabled son of a borrower can say “water” when he is thirsty has nothing to do with whether or not a mortgage should be enforceable. The fact that his remedial speech therapy did not work, while sad, is simply compassion babble. The judge is saying in code “what would you do if you were me?”.

Her Honour may believe that lenders can recover large shortfalls made larger by waiting 2 or 3 years to get to sell a property. Perhaps she has not given it any thought. However it is the shortfalls in America that have caused the financial catastrophe unfolding before our eyes. Mortgages may seem like bits of paper but they are very real in that our whole world is built on them. Burn those bits of paper or ignore what they say in favour of compassion and the consequences will be very real.

Click here to read the full judgment

 “This decision was appealed. Click here to read our report on the appeal court’s decision”.

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