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How Someone Else Can Increase Your Mortgage

Neither a borrower nor a lender be” is wisdom that is as relevant today as when Shakespeare originally wrote it.  When it comes to property, the idea is to own it outright but for most of us, that is not possible. Modern mortgages make it possible for normal people to spend huge sums to buy property and even for separate parties to borrow money and make the purchase together. In all situations caution is required and as this case illustrates it is always important to understand all of the terms of the loan.

In 1999, the plaintiff and the defendant purchased a residential unit with each party owning 50%. They entered into a loan arranged through a broker which appeared from the documentation to be split into two parts. What was not properly understood by the plaintiff was that a drawn down facility existed which could be used by either side without telling the other. The effect of that facility was that additional money redrawn increased the amount owing on both sides of the loan. The attitude of the lender was that the borrowing was against the whole of the property and therefore both sides of the loan should reflect the increased borrowing.

The defendant initially co-owned her share with her partner but his death prompted the plaintiff to propose sale of the unit. The defendant did not want to sell the unit and the litigation included an application that the property be sold under section 66G of the Conveyancing Act 1919 (section 66G). 

One of the issues related to who was responsible to pay off the loan.  On the facts accepted by the court, it appears that it was the deceased who used the draw down facility to borrow extra money.  Both sides claimed that the other owed the whole of the remaining money owed to the lender. The plaintiff’s evidence was in the form of business records provided by the broker showing the repayments and indebtedness under both parts of the loan. The defendant relied on her own payment records, which did not account for the entire loan period and does not appear to have included the additional money drawn down by the deceased.

The court preferred the plaintiff’s evidence and found that the defendant was responsible for the money outstanding on the loan and ordered that the property be sold pursuant to section 66G and that a statutory trust be created to protect the interests of both parties. A statutory trust was required because there was palpable distrust between the plaintiff and the defendant.

The court accepted that the costs of the trustee should be borne equally as a function of the sale of the property but that the whole of the outstanding mortgage should be paid from the defendant’s share. The court also ordered that two thirds of the costs of the section 66G application should be borne by the defendants because whilst that application was inevitable in the eyes of the court, the actions of the defendant made the costs higher than they needed to be.

The moral of the story is that borrowing money with another party in order to purchase an asset can be mutually beneficial to both sides but it is essential that each side properly understands what facilities are available within the loan agreement.  It is also wise to ensure that a signature is required from all borrowers before further money is lent.

If you co-own a property and the other party is refusing to sell, Mullane & Lindsay has over four decades of experience in this area and can assist.

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