29/09/2009

In a recent decision, the Supreme Court of New South Wales dismissed an application by a lender seeking possession on the property where the husband had forged the wife’s signature on the loan and mortgage documents…

 

THE CASE

 

Perpetual Trustees Victoria Ltd v English & Anor [2009] NSWSC 478

 

THE FACTS

 

·         In 1982 Mr and Mrs English married. 

·         In 1985 they purchased a property (as joint tenants) with a loan secured by a mortgage over the property.

·         In 1990 the couple separated and Mr English remained in occupation.  Mr & Ms English both remained on the title.

·         In 2003 Mr English sought to borrow $536,000 and offered the marital property as security.  He did not disclose the application to Mrs English and he signed the documents in his own name and forged her signatures on the loan documents and mortgage.

·         The monies were advanced and the mortgage was duly registered over the property.

·         Mr English then defaulted on the loan and the lender sought an order for possession over the entire property.

·         Mr English was bankrupt at the time of the hearing.

 

THE DECISION

 

The issue is whether the lender is entitled to an order for possession of the entire property including Mrs English interest.

 

The Memorandum to the Mortgage included a definition of “Secured Agreement” which meant:

“any present or future agreement between me or us, or any of us, and you which I acknowledge in writing to be an agreement secured by the Mortgage.”

(underlining added for emphasis)

 

In dismissing the lender’s application for possession of the entire property, the Court held that all the potential borrowers had to agree to be bound by the loan and subsequent mortgage in order for it to be enforced over the entire property.

 

The Court held that:

“Ms English certainly did not mortgage her interest in the land.  She knew nothing of the loan, and nothing of the mortgage.  Registration of a forged mortgage may create a legal fiction that the purported mortgagor mortgaged the land, but that does not carry over to the construction of the mortgage terms.”

 

Therefore what is required to secure the entire property is an acknowledgement by all the individuals constituting the “Mortgagor” that the subsequent borrowing is a “Secured Agreement”.

 

The following illustration was provided by the Court:

 

“Five co-owners of property enter into a loan agreement and each acknowledges the loan agreement to be a “Secured Agreement” for which, therefore, the interests of all co-owners become security.  Subsequently, one-co-owner, unknown to the others, enters into a further loan agreement with the mortgagee.  By reason of the definition of “Secured Agreement” (“any present or future agreement between me and us, or any of us…”), that can also become a “secured agreement”…… thereby encumbering the property to the extent of the second loan, without any knowledge of that part on the part of the co-owners.  That cannot be what the contract meant.”

 

There have been numerous recent decisions by the Courts on forged mortgages and therefore each case would need to be considered on the particular facts and the wording of the loan and mortgage documents to determine the enforceability of the mortgage.

 

If you have any questions in regard to enforcement of loans and mortgages, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.