Angelo and his wife, Susan, took out a $41,500 personal loan to help a family member with medical costs. The loan was secured by their car and a second mortgage over their home.
Four months after they took out the loan, Angelo and Susan were both imprisoned. The loan fell into arrears because they had no income to service the repayments. Angelo and Susan did not tell the lender they had been imprisoned or otherwise contact the lender about the debt. The lender eventually served Property Law Act notices (PLA notices), which meant they could sell the secured property to recover the debt owed to them.
After Angelo was released from prison, he contacted the lender to find out the amount they owed. His plan was to sell the secured property to clear their debts. Susan remained imprisoned.
Angelo complained when he found out the debt had increased to around $59,500. He did not understand how the debt had increased that much and said he could not afford to repay it.
The lender met with Angelo and his lawyer to discuss the complaint and an upcoming auction for the property. Angelo claimed the lender agreed to purchase the property at the auction. The lender disputed that they agreed to this. Rather, they said they agreed to attend the auction and would decide at the auction whether to bid.
The lender did not bid at the auction, and the property was passed in.
Angelo complained to FSCL that:
- the lender had not offered him hardship assistance
- the debt had substantially increased from the amount he borrowed
- the lender had broken the agreement to purchase the property
- he could not afford to repay the debt.
We gave the lender consent to continue mortgagee sale action while we investigated the complaint. They had already started their marketing campaign and, regardless of the outcome of the complaint, the property had to be sold.
Should the lender have offered hardship assistance?
The lender had not done anything wrong by not offering Angelo hardship assistance. Angelo had not requested this, he had not told the lender about the possibility of imprisonment before he was sentenced, and he had not written to them about the debt once he was imprisoned.
Why had the debt increased?
The debt had increased because Angelo and Susan had stopped repaying the loan, but interest and fees (including default interest and fees) had continued to be charged. The lender had also passed on their legal costs for the PLA notice, which they were entitled to do under the loan agreement.
Did the lender agree to purchase the property?
It was difficult to decide whether the lender had agreed to purchase the property given the parties’ different recollection of events and there were no contemporaneous notes about the meeting.
We accepted that Angelo had genuinely believed that the lender was going to buy the property at the auction but, by a narrow margin, there was insufficient evidence to conclude that the lender had committed to buying the property.
Defect in the PLA notice
We found a defect in the PLA notice the lender had served. The lender had demanded payment of around $45,000, which included the principal loan amount. The lender had relied on an acceleration clause in the loan agreement to demand the principal.
Angelo should have been asked to remedy the PLA notice by paying the loan arrears and the lender’s legal costs, which totalled around $7,000. At law, where a loan is secured by a mortgage, notice is required before any acceleration is effective. Section 119 of the Property Law Act 2007 provides that no amounts secured by a mortgage over land are payable under an acceleration clause by reason of default unless notice is served (ie a PLA notice is served), and the notice has expired, unremedied.
However, we did not recommend any compensation because Angelo had not suffered any financial loss or inconvenience because of the lender’s error. Angelo would not have been able to remedy the PLA notice even if the correct amount, around $7,000, had been demanded.
We concluded that Angelo should discontinue his complaint, which he accepted.
Insight for participants
Lenders need to take care to ensure PLA notices are compliant with the Property Law Act 2007. If a lender makes an error, which we consider material, we may withdraw consent for the lender to continue mortgagee sale action while we investigate the complaint and/or recommend compensation for the borrower’s financial loss or inconvenience.