Guardian Loans v FTFS Holdings [2009] NSWSC 1163

This case involved a development site. Guardian Loans was the mezzanine funder (second mortgagee). Suncorp, the first mortgagee, took possession and wrote to them indicating that the property had been sold and there would be no surplus proceeds. The second mortgagee was asked to remove its caveat but refused, indicating it would only do so upon settlement of the sale. The judge approved of this attitude noting:

This requirement is in accordance with common conveyancing practice: on settlement of a sale by a first mortgagee a junior unregistered mortgagee will deliver to the first mortgagee an executed withdrawal of caveat in exchange for whatever is due to the second mortgagee from the balance of proceeds of sale after satisfaction of the first mortgagee’s debt.

Suncorp attempted to lapse the caveat and Guardian resisted. The judge agreed with Guardian noting:

Bearing in mind that Guardian has an undeniable caveatable interest, that the caveat is valid in form, that there is no evidence that its retention up to settlement of Suncorp’s sale will prejudice Suncorp’s rights, and that there are two other caveats on the title apparently protecting interests subsequent to Guardian’s interest, I see no reason to permit Guardian’s caveat to lapse. In taking this view, however, I am assuming that Guardian will in fact, at the appropriate time, proffer a withdrawal of the caveat to permit settlement of a sale by Suncorp to take place.

Suncorp then argued that there is no point in Guardian’s caveat remaining on the title because the market value of the property is less than required to discharge Suncorp’s mortgage and, in reality, Guardian has no interest in the land to protect. The judge refused to credit this argument because no valuation evidence to support it was proffered.

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