Matsui purchased an apartment in Caulfield for $400,000 and settlement took place on 15 March 2010. To pay the purchase price, Matsui used his savings of $45,000 to pay for the deposit and a further $55,000 in savings to pay part of the purchase price. He then borrowed $300,000 from Big Bank Ltd to pay the balance of the purchase price. On 15 March 2010 after the settlement, Big Bank Ltd transferred the certificate of title of the apartment to Matsui’s name and registered its mortgage on the certificate of title.
In July 2010, Matsui decided he needed to renovate his kitchen and bathroom but did not want to reduce the equity he created in the Caulfield apartment. So Matsui borrowed $50,000 from his friend George on 21 July 2010. They agreed to terms for the repayment of the money. A friend of George asked him if he had lodged a caveat on Matsui’s certificate of title. George said he trusted Matsui and that Matsui’s career was going very well. George’s friend game him a caveat from the internet and told him to lodge the caveat to be safe. George said that he would but forgot as the caveat was buried under a pile of paperwork.
Matsui’s career is prospering and his salary increases. In March 2011, he decided to build an extension using the equity in his Caulfield apartment. Matsui entered a loan agreement with Small Bank Ltd for $100,000. The money was advanced to Matsui on 12 March 2011 and Small Bank Ltd registered their mortgage on the certificate of title on Matsui’s apartment on 23 March 2011.
George was paying some bills and found the caveat. He thought it was better to be late than never. On 15 July 2011, George finally filed his caveat on Matsui’s certificate of title for the Caulfield apartment, stating his caveatable interest as his ‘personal loan for renovations to the property on the land contained in the certificate of title’.
By September 2011 Matsui’s career suddenly hit a wall and he lost his job. A tough job market saw Matsui unable to obtain a job and fall behind on his two mortgage repayments and his personal loan from George. Arrears and penalty interest accrue on his two mortgages and he now owes the original amount of the loan. On 20 February 2012, Big Bank Ltd decides to initiate recovery of its outstanding debt of $300,000 and Small Bank Ltd is owed $100,000. George is owed $40,000. To make matters worse, Big Bank Ltd obtained an independent valuation of the Caulfield apartment its value has decreased and is valued at only $380,000.
In relation to the likely sale of his Caulfield apartment, advise Matsui on:
The effect of registration of title and registration of a mortgage.
The priorities of the respective lenders under the Transfer of Land Act and the distribution of proceeds of sale of $380,000.
Who needed to lodge a caveat, why and when?
Whether the borrowers need a mortgagee’s permission to sell the land secured by the mortgage?
If there is a shortfall from the proceeds of sale what would happen?