That mortgage – you can’t bank on it

Catchwords: Property law, mortgage, definition of default, consequences, Conveyancing Act, Real Property Act

I raised a few eyebrows when I addressed the Business, Economics and Trade Committee of the NSW Farmers Association.

“Default” under a farm mortgage is a legal term which is often misunderstood.

Most farmers would understand that “default” means failing to make payment to the bank under the terms of the farm mortgage. For instance, failing to make the monthly payment is a typical example.

But “default” also includes failing to observe other conditions of the farm mortgage. In a typical farm mortgage, default also includes the following:

1. non-payment of rates and taxes.

2. non-payment of a completely unrelated account, say on a credit card account, under the standard “all monies” clause in the farm mortgage.

3. not keeping the farm in a sound state of repair and good working order and failing to make any repairs demanded.

4. pulling down, removing or altering the farm buildings without written consent from the bank.

5. failing to insure the farm improvements for fire and other risks, to their full value in the joint name of the bank.

6. failing to deliver to the bank the insurance policies as soon as they are taken out.

7. insuring other improvements on the farm in the name of the farmer alone.

8. refusing or failing to give the bank a lien over any crop if requested by the bank without  receiving any further advance.

9. giving another lien to somebody, not the bank, over a crop.

Upon default, immediately the whole of the mortgage becomes due and payable to the bank, and often without notice to the farmer. Any of the above breaches is sufficient to give the bank the legal right to enforce its security.

Some of them arguably trivial or hidebound.

Often banks do give the farmer notice or don’t take advantage of their legal rights to enforce the security, after the farmer defaults in one or more of the ways listed above.

However, that is not the concern of the farmer. He or she is a non-consumer, and so is outside the protection of the notice requirements under the National Credit Code.

The notice requirements on the Conveyancing Act and the Real Property Act, only apply to a bank seeking enforcement by a power of sale.

They do not apply to banks wanting to appoint a receiver immediately, or taking possession of the farm.

The provisions of the Farm Debt Mediation Act can be invoked by the farmer to stay the enforcement. But, as discussed in previous columns, banks use mediation as a method of cheap enforcement, and after mediation, once the S11 certificate is issued, the farmer is once again exposed to lack of notice and precipitous action by the bank.

The potential injustice here is that farm mortgages, from the time they are entered into by the farmer, are loaded by the banks to create multiple events of default, without adequate, reasonable notice requirements to the farmer.

Farmers let banks get away with it when they sign up to get their mortgages. If the pundits answer is that banks remain flexible, even though there is default, then ask the bank the next time you take out a mortgage to leave out the some of the events of a default and put in a reasonable notice requirement. See what the bank says.

My somewhat cynical guess would be the bank will say that the mortgage complies with the legislation, so take it or leave it.

Jonathan de Vere Tyndall

Updated 7 January 2015, originally published in The Land on 6 April 2000

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.