Caveats for Fees

Bransgroves Lawyers have observed, over many years, that the practice of brokers and lenders placing caveats on the title for the recovery of fees causes a great deal of trouble, aggravation, reputational damage and court costs for all involved.

In some cases, where the court awards costs against the lender or broker, it can be ruinous and out of all proportion to the fees sought to be recovered. We have also observed it is an area where judges tend to split hairs to achieve results favourable to the borrower, which is to say the contract is construed strictly against the financier.

For lenders

Lenders use these clauses to recover the cost of due diligence where the borrower does not proceed. There is an alternative approach which is to ask for an upfront application fee to cover the cost of due diligence. Many of our clients do this and so have no need of, and do not include, charging clauses.

For brokers

Most disputes over broker mandates arise because there is a disparity between the mandate and the ultimate letter of offer and/or security documents obtained. This can be avoided if, once the initial mandate is signed, subsequent iterations are solicited so that the final mandate matches exactly the letter of offer obtained. In other words the nitty gritty of the negotiation between the parties should be conducted via interations of the broker’s mandate before the identity of the lender is revealed.

Our position

For ethical and commercial reasons we will only act for a broker or lender who wishes to lodge or maintain such a caveat if:

1. The proposed finance is first registered mortgage finance (no second mortgages or caveat loans).
2. The caveat is not being placed on a third-party guarantor’s property.
3. The caveat is not being placed on an owner occupier’s home.
4. There was not already a caveat on the property at the time the mandate or loan offer is signed.
5. The lower interest rate under the proposed facility is < RBA +10%
6. The higher interest rate under the proposed facility is < RBA +12%
7. The upper bracket of the higher rate and lower rate must be disclosed in the mandate or letter of offer.
8. The upper bracket of the total cost of the loan must be disclosed in the mandate or letter of offer.
   In the case of a lender’s letter of offer.
9. The fee being charged is reasonably commensurate with the due diligence being undertaken.
10. The due diligence is described to a degree which will allow the borrower to anticipate rejection should they be hiding something.
11. The lender had funds available to proceed with the loan.
12. There was a reason why the borrower could not front an application fee which does not reflect on the serviceability of the loan.