In this case the owner of the mortgaged property was a 91 year old Sicilian woman who lived in a nursing home and although a resident of Australia for 55 years could not speak, read or write English. The mortgage was executed under a power of attorney by her son and the money used for his business. He died but his mother forgot she attended the funeral and believes he is alive and living in Sicily.
It was determined by the Court that the form of power of attorney used (schedule 7 to the Conveyancing Act), although drafted very broadly did not authorise the attorney to use the power of attorney for his own benefit. The mortgage was nevertheless held to be indefeasible but that was overturned on the basis of a personal equity arising from unconscionability. What was said to be unconscionable was that the agent of the lender knew the owner of the property was an old lady and knew that the son was in serious financial difficulty.
Bransgroves Lawyers advises lenders to never to accept execution of a mortgage by power of attorney. If the owner is mentally competent to make the decision to mortgage their property then they should be asked to execute the documents. If the owner is overseas the documents should be executed before an Australian consulate official and mailed back to Australia. If the property owner is not competent to execute the documents then the loan should not be entered into.
A careful reading of this judgement seems to suggest that the power of attorney could have been crafted so that it did authorise borrowing for the benefit of the attorney but on the reasoning even if that had occurred the loan would have been set aside in any event. As a general rule lenders should not loan to elderly widows for the benefit of third parties. Regardless of the precautions taken the loan is likely not to be enforceable.