The lender obtained orders for possession of the house of elderly Greek pensioners. They now apply to have the judgment set aside on the basis that their signature on the mortgage was a forgery by their daughter.
Failure to appear and delay issues
The court found that the failure of the parents to file an appearance in the first proceeding, and to appear at the hearing of the second proceeding, was sufficiently explained because, if their evidence is accepted at trial, they had been deceived by their daughter that they had no reason to be concerned about the proceedings against them.
Is there an arguable defence?
The mortgagors put forward a defence based on two grounds. First, because their signatures were forgeries. Second, because the lenders, through their solicitors and agents, engaged in unconscionable conduct in connection with the mortgage – by engaging in ‘asset based lending’.
The court found that the forgery defence was not an arguable defence. The mortgage must be taken as indefeasible unless the mortgagees or their agent were party to or privy to the forgery. There was no evidence that the lender or their solicitors were a party to any forgery.
Asset based lending by mortgagees may, depending upon the circumstances of the particular case, constitute unconscionable conduct entitling the mortgagor to set aside the mortgage instrument. It may be unconscientious to lend a large sum of money to a person with no income with full knowledge that if the repayments under the loan were not met, it could sell that person’s only asset. The court acknowledged some doubt as to whether the mere fact that the loan was asset based was sufficient but found it unnecessary to decide the point. Relief setting aside a mortgage in such circumstances will usually be granted only on condition that the mortgagor do equity by paying or securing to the mortgagee the amount of any benefit obtained by the mortgagor from the relevant mortgage advance.
The court found that it was clearly arguable that the plaintiff lenders, through the solicitors as their agents, engaged in pure asset based lending and unconscionable conduct. From the affidavit material filed, it would appear that the solicitors adopted the position that all they needed to do in the circumstances was: (1) ensure their clients were adequately secured; and (2) obtain a certificate from an independent solicitor. It is arguable that the failure of the lenders or their solicitors to make any relevant enquiries as to the circumstances of the borrowers; in particular as to their age, ability to understand the English language, health, the purpose of the mortgage loan, their income or their ability to repay the amounts due from time to time under the proposed mortgage, may have been morally repugnant.
The lenders then argued that the borrowers received the benefit of having the prior mortgages discharged by moneys advanced by the lender; and a condition of any final relief setting aside the mortgage would necessarily be to require them to pay or secure the sum of at least the mortgage debt to the plaintiffs.
The court found that if it was established that the unconscionable conduct caused them to lose the opportunity to discover the fraudulent use of their property as security for loans of no benefit to them (including the prior and subsequent loans), conditions would not necessarily be imposed on equitable relief setting aside the mortgage. The court noted that it had statutory jurisdiction to award relief under sections 158 and 159 of the Fair Trading Act 1999 for:
- Damages for loss of opportunity to set aside the pre-existing and subsequent securities over the home, in an amount equal to or exceeding the mortgage debt; and
- Orders declaring the mortgage void ab initio, varying the terms of the mortgage or refusing to enforce any or all of the provisions of the mortgage
Can any prejudice to the plaintiffs be compensated for?
The court found that the prejudice to the lenders on setting aside the judgments could not be compensated for by mere orders for costs, for the following reasons:
- The amount presently owing under the mortgage was approximately $475,000, with interest accruing at approximately $4,100 per month.
- The only valuation evidence before the Court obtained in October 2009 valued the home at $615,000.
- Assuming that the property was now worth approximately $625,000 after selling expenses, there was approximately $150,000 difference between the present debt owing and the likely net sale proceeds.
- If the judgments were to be set aside, the ensuing multi-party litigation would take some time to reach trial and for a judgment to be delivered. In the meantime, interest will continue to accrue and the plaintiffs will incur significant legal costs. Given the allegations of unconscionable conduct, they would likely need to engage new legal representation; as their present solicitors may be in a position of conflict of interest.
- In all the circumstances, any order setting aside the judgments would need to be on condition that some further security be provided by the mortgagors.
Should the judgments be set aside?
The court set aside the judgments for possession, and restrained the proposed mortgagee’s sale, but only on conditions as to further security being provided in an amount equal to 12 months interest with a generous allowance for the lenders’ likely costs of the proceeding on a solicitor and client basis, within 30 days of this day, or the applications stand dismissed. In the meantime, the court ordered that the sale of the property be restrained for 30 days.