Secure Funding v Patane [2009] NSWSC 845

Default judgement was entered and the writ stayed three times before the borrowers brought an application to set aside the default judgement and file a defence weeks before the property was due to be auctioned by the lender. The lender resisted on the grounds:

  1. the borrowers were legally represented throughout the proceedings;
  2. the motion to set aside judgment was filed nine months after default judgment had been entered;
  3. the borrowers have already been granted three stays on the writ of possession;
  4. as a result of the delay there may now be a shortfall when the property is sold.

The main issue raised by the proposed defence was that the higher rate was a penalty. The mortgage had been badly drafted with higher rate being described as a ‘default rate’ for overdue payments, rather than the lower rate being a concession for prompt payment. This error is not always fatal and was not in this case with the judge noting:

Default interest is a penalty, and as such is void and unenforceable; when it is not a genuine pre-estimate of the loss a lender may suffer by being kept out of his money: An increase of two per cent has been accepted as a standard and acceptable increase. The defendants’ penalty rate of interest is four per cent. An agreement to pay a sum as damages should only be struck down as a penalty if “it is out of all proportion to damage likely to be suffered as a result of breach”. Four per cent can hardly be said to be “out of all proportion”.

To avoid these sorts of issues lenders are advised to use premium mortgage documents, Bransgroves Lawyers licence security documents to astute lenders who wish to avoid delays, legal fees and shortfalls. The judge dismissed the application noting:

In my view, the defences raised are hopeless. They are not bona fide. Further, it is not in the interests of justice to set aside the default judgment in circumstances where the defendants have agreed they owe the plaintiff $445,000. There have been three stays on the execution of the writ of possession, the property is vacant and there is little or no equity in the property.

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