Some caveats may com­pro­mise a mort­gagee pow­er of sale

In Brief

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:

  1. nego­ti­ate a with­draw­al of caveat from the caveator; or
  2. 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.