Koovousis v Tony trustee in bankruptcy of the Estate of Vrkic [2014] NSWSC 218

A mortgagor sold his property to a purchaser and then went bankrupt. The purchaser sought an order specific performance of its contract and an order for judicial sale, which would have the effect of leaving a shortfall to the mortgagee.

The law is that a court in exceptional circumstances can order judicial sale over the objection of the mortgagee.

The court held that the purchasers’ rights were personal contractual rights against the trustee in bankruptcy – they had no action against the mortgagee but sought to acquire the property at a cost to the mortgagee. The court noted there was no challenge to the validity of the mortgages and enforcing the contract price would result in a shortfall.

The court said:

The Court will not ordinarily make an order for a judicial sale on an application by a mortgagor (still less, a purchaser from a mortgagor) where there is a negative equity and mortgagee actively wishes to enforce its security.

The court refused to order judicial sale and dismissed the purchaser’s proceedings, other than the return of their deposit.

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