Q&A: Using Caveats Over Real Property in Debt Collection

Q&A: Using Caveats Over Real Property in Debt Collection

Common questions and answers for using caveats over real property in debt collection…

 

What is a caveat?

A caveat is a formal notice lodged on real property, which stops any person (including the registered proprietor) from dealing with the real property.

Who may lodge a caveat?

Any person claiming an estate or interest in land.

Does Judgment give me a caveatable Interest?

No

What is necessary to establish an Interest?

An actual interest in the property itself (some relation between the debt and the property).

It is not intended to provide an exhaustive list, but some common examples may include:

  • Equitable mortgagee or chargee
  • Purchaser under a contract of purchase
  • A husband or wife or partner (defacto)
  • Lessee
  • Beneficiary under a trust
  • A victim of fraud

What is an Equitable Chargee?

Where the debtor agrees to charge their real and personal property with the payment of a debt, the creditor becomes an “equitable chargee”; “equitable” in this sense meaning “unregistered”.

For example:
“The guarantor charges as beneficial owner and trustee of every trust all the guarantor’s land (including land acquired in the future) in favour of Bunnings to secure the payment of the moneys and the performance and observance of the guarantor’s covenance under this deed.”

(See Bunnings Building Supplies Pty Ltd -v- Blue Diamond Homes Pty Ltd [2004] QSC 54)

Note: Check the credit application and any guarantee documents.
If you are unsure whether or not your client is an equitable chargee, ask your friendly solicitor.

What is the procedure for lodging a caveat?

  • Confirm the existence of the debt
  • Confirm the caveatable interest (check the charging clause)
  • Lodge caveat (your friendly solicitor does this)
  • Notify other interested parties (Registrar does this)
  • Within 3 months of registration, commence legal proceedings (Supreme Court)

What if I don’t issue legal proceedings?

The caveat will lapse after 3 months. You may only caveat once.

Why use a caveat instead of a writ?

Caveat may be lodged immediately the debt becomes owing, whereas a writ requires a judgment.

Other matters to note about caveats

  • Be careful and always seek advice on whether there is an equitable interest
  • Conduct searches to ensure there is equity in the property
  • There are obvious costs risks if you get it wrong (Supreme Court)
  • A charging clause (and therefore a caveat) will not give priority over registered mortgages and perhaps future liquidators. A specific charge should be drafted for this.

Consent Caveats

 

What is a consent caveat?

The registered proprietor may agree to the lodgement of a caveat on the property, despite no pre-existing caveatable interest. A consent caveat will remain on the title even after the 3 month expiry period.

Example:
Debtor owes $10,000.00 and agrees to pay it back at $2,000.00 per month.
Creditor agrees, but wants security.
The Parties may agree that, instead of a registered mortgage, a consent caveat will be lodged.
A settlement agreement may be executed, charging the property and the consent caveat lodged.

What is the effect of the Consent Caveat?

Debtor may not transfer or re-finance the property without paying the debt or obtaining the creditor’s consent.

If you have additional questions about caveats over real property in debt collection, we can help.

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