Caveats, Loans and Homes

caveats homes and loans

You might have heard the term “caveats” thrown around here and there when referring to loan agreements and property. But what exactly are they?

The short of it is that a caveat is essentially a notice (statutory injunction) recorded on a property that may prevent the owner from dealing with that property including selling it or transferring it. This can be a nuisance where the owner may wish to sell the property urgently in this market and a caveat prevents them from doing so.

A caveator is the one who records the caveat with the Land and Property Information (LPI). It can be a person or a company who is claiming an interest in the property. In order for the owner to deal with the property, they must either remove the caveat or seek the caveator’s consent.

Recording a Caveat

There are certain circumstances that allow people or companies an entitlement to grant a caveat. One of the most common instances that give the right to caveators to record a caveat is when the property owner gives them that right by consent.

Who in their right mind would do this?

Well for an example you may wish to buy a property for $725,000.00 but the bank has only approved a loan for $700,000.00. In order to obtain finance for the shortfall of $25,000.00, you may wish to approach a private lender for that loan. That loan agreement may contain a clause which allows the private lender to register a caveat until the balance of the loan is satisfied.

In that scenario, the bank will record a mortgage on the property whilst the private lender records a caveat as the property will be the security for the respective loan agreements.

Some caveators may have an equitable right to register caveats. For example in a Sale of Land transaction where the purchaser pays a deposit for the purchase of land, that purchaser may be entitled to record a caveat on the property until the settlement of the transaction.

Removing a Caveat

In most circumstances, the removal caveats are not controversial. If the debtor satisfies their liabilities owed to the caveator, for example a home owner paying off a debt to a private lender, then the caveator will remove the caveat by providing a Withdrawal of Caveat form to be lodged with LPI.

Alternatively the property owner can apply for a Lapsing Notice with the LPI where the caveat is removed by the authority after a lapsing period. The caveator can of course object to this and apply to the Supreme Court to extend the life of the caveat. When this happens it may be wise to offer the caveator a substitute security to protect the caveator’s interest. That way when the property owner approaches the court to remove the caveat, the court will be more inclined to do so.

If the issue of removing the caveat becomes quite contentious the matter may be litigated and it may become necessary to obtain an order from the court seeking the removal of the caveat.

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