Lenders can be liable for FHOG refunds

21 November 2016
Malcolm Watson, Partner, Melbourne

Recent amendments to the First Home Owner Grant Act 2000 (Vic) (FHOG Act) will enable the State Revenue Office (SRO) to recover first home owner grant  (FHOG) payments from third parties such as lenders.  This means that where homeowners have received a grant payment that they were ineligible for, or that they have subsequently become ineligible for because of a failure to satisfy the 12-month residency requirement or another reason, the SRO can recover the cost of the grant directly from the lender.

This amendment has been achieved through inserting a new section 49B into the FHOG Act which provides at subsection 1:

“the Commissioner may require a lessee, mortgagee or occupier of any specified property to pay the grant amount or any part of the grant amount that is payable but remains unpaid.”

The wording is consistent with section 98 of the Land Tax Act (Vic) which allows the SRO to recover unpaid land tax from third parties including mortgagees.  Accordingly the amendments are consistent with the SRO’s general recovery powers and do not represent a departure from the current status quo.

The new section 49C(3) of the FHOG Act provides that:

“if a mortgagee pays an amount under s 49B, the amount is taken to be secured by the mortgage in addition to any other amount secured by it.”

Whilst the SRO can seek recovery of both unpaid land tax and FHOG received when ineligible, in the past recovery of land tax by the SRO was generally undertaken at settlement of any sale. We expect that this practice will continue for both outstanding land tax and any FHOG received by an ineligible recipient. However, it must be noted that a demand may be made by the SRO at any time and the recovery by the SRO of the amounts outstanding will be in priority to the lender’s debt.

This update does not constitute legal advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek legal or other professional advice before acting or relying on any of the content.

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