Undertaking Due Diligence in Second Mortgage Transactions

NEW SOUTH WALES

NSW also has fully electronic titles and also only accepts lodgements via PEXA. However, NSW is unique in that the Conveyancing Act 1919 ('NSW Act') only requires the production of titles by a first mortgagee to enable the registration of a subsequent mortgage if that mortgage has been authorised by the first mortgagee. Furthermore, the electronic title is protected by a Chord that will be held by the first mortgagee.

This means that in NSW the consent of the first mortgagee is actually required to register the second mortgage, and the first mortgagee may refuse.

Institutional first mortgagees such as banks will ordinarily consent and engage in PEXA to provide their Chord. They will usually require the execution of a short deed of priority and payment of a small fee in consideration of providing their consent.

Smaller public lenders and private lenders may have more invasive requirements, expectations and fees which may make it difficult to price these loans upfront and potentially make registration of a second mortgage unviable.

NSW Law Implies Some Unique Considerations for Lenders:
As a Second Mortgagee:

• You will need to request the consent of the first mortgagee to register the second mortgage, and it is possible that the first mortgagee may refuse.
• If the first mortgagee is a bank, consent is usually given subject to execution of a short form deed of priority and payment of a small fee.
• If the first mortgagee is not a bank, you should enquire early in your due diligence to ensure consent will be given and the conditions of consent. You may be required to sign a more substantial document and pay a substantial legal fee, which will need to be factored into the costs of the advance.
• If the first mortgagee refuses consent, or to protect yourself in the interim, you may wish to lodge a caveat. Take note however that a caveat will lapse after 3 months from its registration. See also our comments on the use of caveats later in this publication.

As a First Mortgagee:

• You may be asked from time to time to consent to a second mortgage, including in circumstances where a caveat has already been lodged by the second mortgagee.
• You are entitled to refuse consent if it is warranted, we recommend you obtain all details regarding the second mortgage before choosing whether to consent.
• If you consent, you may set conditions such as the execution of a deed of priority and payment of your legal fees for production of the deed.
• If you do not consent, be aware that the second mortgagee may commence proceedings under its caveat that may lead to sale of the property and early conclusion of your facility.
  
  
  
  

Please be advised this is general information only, and is not to be taken as legal advice. If you would like more information, or have a legal query, please contact Abbott & Mourly directly.
Reviewed: 17/01/2024