Sold Under Market Value: The Duties of Mortgagee
A 2013 decision of the NSW Supreme Court reminds mortgagors and those exercising powers of sale (including liquidators appointed under the Corporations Act) of the importance to ensure that appropriate due diligence and appropriate marketing is engaged in.
In the case of Australia and New Zealand Banking Group Ltd v Pola , the bank sought repossession of two (2) rural properties in NSW. By counterclaim, Mr & Mrs Pola claimed for damages as the bank failed to properly market and sell the property in Queensland. Relevant to that claim was section 85 of the Property Law Act 1974 (Qld) which provides the mortgagee or receiver acting under the power of sale must take reasonable care to ensure the property is sold at market value.
In Pola’s case, the relevant rural Queensland property also included a licence for water entitlements which in and of itself was extremely valuable. The banking group, failing to properly explore this, instead sold the property “all in one line” (meaning together with the licence) and failed to mention the separate water rights in the advertising. The property eventually sold for 6.1 million.
The Judge in that case accepted that it was not incumbent on the Polas to prove that the mortgagee could have got a better deal if the advertising had been done correctly. It was sufficient, in His Honour’s view, to establish that the mortgagee failed to ensure the property was sold at market value (in Pola’s case that was the failure to adequately advertise) and therefore the measure of damages was to be set off against each other the actual price and the market value (in Pola’s case, 7 million).
Pola’s case raises a number of interesting points in relation to mortgagee sales, in particular a mortgagee’s obligation to conduct appropriate enquiries and take appropriate advice. It is common nowadays for mortgagees to sell properties on an “as is, where is” basis which often means that the mortgagee does not undertake separate enquiries as to the land or any ancillary values. Pola’s case makes it clear the Courts will not readily accept a mortgagee’s position under section 85 of the act where that mortgagee has failed to take adequate advice as regards matters such as the true value of water rights pursuant to a licence.
It is vital that you take the entire value of your property into account and into the mortgagee’s account as these problems are much easier to resolve before the property is settled. If you have had similar problems to this case please don’t hesitate to contact us on firstname.lastname@example.org or call 1300 HATZIS (1300 428 947).