A common question is whether the sale by a mortgagee exercising power of sale will extinguish all subsequent encumbrances when the transfer is registered.

In particular, will all caveats be removed on registration of the Transfer by the Mortgagee Exercising Power of Sale?

Short Answer

No, not all encumbrances will be removed when the mortgagee exercising the power of sale registers the transfer.

Each encumbrance must be carefully considered and analysed to determine whether or not the dealing will be removed upon registration of the transfer.  Examples of encumbrances include a mortgage, a caveat or a statutory charge.

Registered Mortgagees and the Power of Sale

Section 58 of the Real Property Act 1900 (NSW) (the Act) confers a power of sale upon a registered mortgagee.

Mortgages

Section 59 of the Act provides that for the purpose of s 58, the transfer by the mortgagee will be registered and pass to the transferee free of any mortgage, charge or covenant charge registered subsequent thereto.

Any subsequent registered mortgage should, therefore, be removed without requiring a Discharge of that Mortgage to be registered.

Caveats

Section 74H (5) of the Act sets out several types of dealings with land that may be registered despite a caveat on the title, provided that the caveat has not been amended specifically to block the dealing.

Specifically relevant to the sale by a mortgagee are paragraphs (g) and (i) of section 74H(5).

Where the later caveat interest is an unregistered mortgage, a transfer by a mortgagee exercising power of sale should be registered and the caveat removed from the title. This is because the registration of the transfer vests the estate of the mortgagor in the transferee freed and discharged from the particular mortgage and any subsequent mortgage (see s.59 of the Act).  Remember, though, that this is subject to reading the caveat and confirming that the caveat does not expressly prohibit the registration of the transfer.

Caveats supporting other interests will not be removed upon registration of the mortgagee’s transfer under a power of sale.   An example of this is a recent matter where we are acting for a mortgagee exercising a power of sale. A caveator has lodged a caveat for a life estate claiming “an equitable interest created when the caveatee transferred title to himself in breach of fiduciary duties”.

This caveat will not be removed when the mortgagee’s Transfer Under Power of Sale is registered.  In this instance, we have negotiated with the Caveator, who has agreed to withdraw the caveat on settlement.

Conclusion

Each subsequent encumbrance must be carefully considered and analysed to determine if it will be removed upon registration of the Transfer by Mortgagee Exercising Power of Sale.

If you are unsure whether the caveat will be removed, you should consider obtaining a Withdrawal of the Caveat or the caveator's consent (if agreed to by the purchaser) or take steps to lapse the caveat.

If you have any questions about this article or need assistance purchasing a property, please contact Robyn Chamberlain in our Property team.