Some caveats may compromise a mortgagee power of sale
Some caveats registered on the title to real property can create obstacles to the conveyancing process in a mortgagee power of sale, even if the caveat is registered subsequent to the mortgage under which the mortgagee is exercising its power of sale.
Generally, a caveat freezes the Register, preserving the status quo.
While a caveat remains in force, the Registrar General cannot record in the Register any dealing prohibited by the caveat, except with the caveator’s consent. However this general prohibition is subject to exceptions, for example:
- a caveat does not prohibit the Registrar General from registering a transfer under power of sale in relation to a mortgage recorded or lodged before the lodgement of the caveat; and
- the Registrar General shall, for the purpose of the sale under power of sale, register a transfer executed by a mortgagee and, upon that registration, the estate or interest of the mortgagor of the land comprised in the transfer shall pass to and be vested in the transferee, freed and discharged from all liability on account of the mortgage or of any mortgage subsequently registered.
Normally, the Registrar General will register a transfer under power of sale and record that the caveat is cancelled, where:
- the caveat is by an unregistered mortgagee; and
- the caveat does not expressly prohibit the registration of the transfer and either:
- the caveat was recorded after the mortgage conferring the power of sale; or
- the caveator had consented to the recording of the mortgage or had allowed the caveat to lapse in respect of the recording of the mortgage.
However, a caveat that does not fit into the criteria above will not be cancelled by the Registrar General when and if a transfer under power of sale is lodged for registration.
Examples of caveats that do not fit into the criteria above include a caveat registered by a grantee under an option or a caveat registered by a purchaser under a contract for sale.
Accordingly, if a secured property the subject of a mortgagee sale has noted on the title a caveat securing an option granted to a third party grantee, the mortgagee will have to either:
- negotiate a withdrawal of caveat from the caveator; or
- attempt to lapse the caveat,
as the Registrar General will not cancel the caveat upon lodgement of a transfer under power of sale.
If a purchaser of the secured property is aware of this likelihood, they will insist on the mortgagee providing a withdrawal of the caveat signed by the caveator as a condition of settlement of the contract. This will create an additional burden on the mortgagee exercising its power of sale.