Gadens has had involvement in numerous matters where land, the subject of a registered mortgage, is disclaimed by a Trustee in Bankruptcy or Liquidator.
Recent changes to the Property Law Act 1974 (Qld) (Act) have simplified the process for mortgagees exercising power of sale and do away with the need for a Court order.
Previously, a mortgagee was required to apply to a Court for a vesting order allowing it to exercise power of sale and to dispense with the requirement to give a Notice of Exercise of Power of Sale to the mortgagor.
The changes to the Act mean vesting orders are no longer needed for properties disclaimed after 25 May 2020. However, as these changes are only recent, there may be some existing cases where a mortgagee will still need to obtain vesting orders from the Court.
A Trustee in Bankruptcy or Liquidator is entitled to disclaim property (including land) where there are concerns about liabilities or risks and obligations associated with the property (and its maintenance) having regard to the potential equity that may be available if it were sold.
The effect of land being disclaimed is that it vests in the State of Queensland and, prior to the changes to the Act, the mortgagee was unable to:
Where land was disclaimed, mortgagees incurred significant legal costs applying to the Federal Court of Australia or the Supreme Court of Queensland for vesting orders allowing a valid exercise of the power of sale.
Often the application for vesting orders raised peculiar legal issues, along with specific, technical questions raised by the Courts.
Mortgagees will be relieved to know that the recent changes to the Act mean that it is no longer necessary to obtain vesting orders before they can exercise the power of sale.
Under the new section 84A of the Act, where a Notice of Disclaimer has been given by a Trustee in Bankruptcy or Liquidator on or after 25 May 2020, a mortgagee’s right to exercise its power of sale is no longer dependent on a vesting order but rather, can be exercised provided that:
The approved form of notice that must be given under new section 84A is not yet available.
If there are surplus proceeds of sale after the mortgagee has sold the disclaimed property, the Act has been changed to provide that those surplus funds must be paid into Court.
These recent changes do not affect a mortgagee’s duty to take reasonable care to ensure that the property (even if disclaimed) is sold at market value and, where applicable, to ensure evidence of the property’s value is obtained and that it is adequately marketed, maintained and sold at auction (unless appropriate to sell in another way).
Finally, whilst the changes in law have simplified the power of sale process for disclaimed properties by mortgagees, a mortgagee should still be aware that other parties claiming an interest in the disclaimed property still have a right to apply to a Court seeking orders that the disclaimed property vests to them. If a mortgagee becomes aware of such an application it should promptly contact us.
Where a disclaimer of land previously resulted in increased costs and delays to mortgagees seeking to enforce their rights, changes to the Property Law Act 1974 have simplified the process for mortgagee sales in Queensland and vesting orders are a thing of the past.
However, where the disclaimer of land occurred before 25 May 2020, it is likely that the mortgagee will still need to apply to the Court for a vesting order.
The approved form of the notice that must be given under section 84A has not been released and Gadens will monitor for further developments.
Where properties are disclaimed, advice should be sought as soon as possible to confirm the mortgagee’s position and avoid delays in the mortgagee sale process.
Barbara-Ann Sim, Partner
Susan Forrest, Partner
Petar Damnjanovic, Solicitor