Banks? No thanks!

Catchwords: Property law, Farm Debt Mediation Act, immediate right to vacant possession without demand, power of sale distinguished, Real Property Act, Legal Profession Act costs assessment, National Credit Code, default notice, bank charges of mega-law city based legal costs, unfair

The farmer is in a precarious position with most bank mortgages.

If the farmer defaults in paying a single monthly instalment, a bank can under most mortgages, proceed immediately in court without giving the farmer any default notice, for order for vacant possession.

To add insult to injury, while doing so, lump the farmer with unassessed legal costs on a solicitor-client basis, on top of the farm mortgage.

I have discussed the Farm Debt Mediation Act in previous columns.

However, let’s say that there has been a mediation because the farmer was aware of that right after reading the Bush Barrister column, and the farmer resolved a prior default and got back on track with the bank. But within the three years of the s11 certificate, which the bank obtains after the mediation, drought hits and there is another default. Perhaps just one monthly payment.

Surely there must be some contractual or legislative requirement that the farmer be given notice of the default and the intention of the bank to seek vacant of possession of the farm?

Right? Sorry, in most cases, wrong.

Most bank mortgages allow the bank to proceed immediately for vacant possession, without making a demand, if there is even default in making one monthly payment. Check yours.

As for the legislation, s60 of the Real Property Act (“RPA”) allows the bank to either enter into possession upon a default of payment of interest, or bring proceedings for possession.

The requirements for giving of notice in s57 and s58 of the RPA and in s111 of the Conveyancing Act relate only to the power to sell, which is something else.

There is statutory protection of being given a “default notice” under a credit contract mortgage prior to commencing enforcement proceedings. This allows the debtor  to rectify  the default within 30 days, under the National Credit Code (National Consumer Credit Protection Act 2009 (Cmth.),  Schedule 1, S88(2)).

There are criminal penalties for a credit provider not giving the default notice of $5,500.  However, this protection only applies to consumers who borrowed for personal, domestic or household use.  And it only applies to natural persons.  A farmer is not a consumer so there is no such protection.

Practically, there is no statutory protection of being given any default notice of bank intention to seek vacant possession for farmers with larger mortgages, who default in a single monthly instalment, even if it is because of hard times. Most farm mortgages are practically outside the statutory protection of the National Credit Code.

Furthermore, most bank mortgages allow the bank to deduct “legal expenses” from the mortgage account, without notice.  These charges can go straight onto the bank statement.

A farmer wanting to refinance a loan,  will probably be asked for a mortgage statement. On that statement will be,  potentially, items relating to recovery and for legal costs paid to the bank’s solicitors. The bank’s charges for the “default” may be legitimately disputed by the farmer, or technical at best.

However, there is no reasonable opportunity to deal with that fairly given the legal right of the bank to put the charges on the bank statement. Once they are  on the bank statement, it becomes harder to refinance for the farmer with another bank, even though there may be valid reasons for the dispute. This tends to force the farmer “beyond” farm debt mediation into handing over possession to the bank and into a power of sale situation at below market prices.  It leaves banks open to the allegation of  financial duress or bullying.

In New South Wales, The Legal Profession Act 2004 now allows for a “third party” payer of costs to apply for a costs assessment of legal costs to the Supreme Court of New South Wales, Costs Assessment, whether those costs have been paid wholly or partly by the bank or not (S350(2) LPA). [This was a reform of the earlier 1987 Act which did not allow for assessment of costs paid by bank customers.] However, there will still be reasonable costs allowed by the Costs Assessor.

Doesn’t this gap in the legislation encourage overcharging by city based “mega lawyers” to banks? The banks then pass these high legal costs onto the farmer, who will have to pay reasonable assessed legal costs, but still starting from an originally  high level of city based mega-law firm charges out rates.

These unfair legal costs go hand in hand with the proliferation of legal proceedings for vacant possession, without fair notice to the farmer, because the farmer is not a consumer,  and without  the opportunity to rectify default. The current banking and legal regime is unfair and does not assist farmers. And you can’t eat money.

Until this is changed by Parliament, or the banks, the farmer is quite justified in saying, “Banks, no thanks”.

Jonathan de Vere Tyndall

Updated 6 April 2015, originally published The Land on 28 October 1999

Editors note: The articles published contain comment only and not legal advice, for which you should retain a solicitor. No responsibility is accepted for the accuracy of the contents.