Caveats and mortgages are common terms used in obtaining finance and loans from banks – but what exactly are they? We’re here to clear up the technical meaning of the words so you’re in the know next time you walk into a bank to get that finance approved for your next property purchase!
What is a Caveat?
- A caveat is a form of injunction – it’s basically an order made by a court requiring a person to do or stop doing a particular act. It essentially prevents the owner of the property from selling the property without the caveator’s (the person who filed the caveat) consent.
- A caveat generally prevents the registration of any transactions affecting a property e.g. transfer, mortgage or lease) on a property. It notifies the caveator when a third party is attempting to register a dealing on the property or where the owner is transferring the property.
- A caveat does not give a caveator a right to possess the property or sell the property.
- You can lodge a caveat if you have an interest in the property that you cannot protect by registration of a mortgage. However, if you lodge a caveat without reasonable cause, you may be liable to pay compensation to the owner if they suffer any losses or damages as a result of the caveat.
- Caveats are usually used as some kind of security particularly for some loans. The borrower (and owner of the property) can authorise the lender to lodge a caveat on the property.
What is a Mortgage?
- A mortgage is actually not a loan as most people would think. It is a registrable form of security that can guarantee the payment of a debt or loan.
- A mortgage creates a security interest (legal claim) in the property with the homeowner (also known as the mortgagor).
- A mortgagee (the lender in a mortgage, typically a bank or lender) does not have title to or possession of the property. But if a borrower (aka mortgagor) is in default on a loan, the lender (aka mortgagee) can exercise certain remedies if the borrower defaults (see point 10 below).
- An unregistered mortgagee does not automatically have statutory powers to sell the property as a registered mortgagee. It is not uncommon for banks and lenders (mortgagees) to send borrowers with letters of demand requesting payment of the loan before seeking to enforce their rights through court.
- The following remedies are available to a mortgagee when the mortgagor defaults:
A. take possession of the property occupied by a tenant by giving the tenant a written notice explaining that the mortgagee is taking possession and that the tenant now pays the rent to the mortgagee; or
B. bringing Court proceedings against the mortgagor for:
- possession of the property; or
- selling the property; or
- obtaining a monetary judgment; or
- obtain an order for foreclosure.
For more information regarding Caveats and Mortgages or legal advice on property law, check out our full suite of services here.
