Ramifications of abolishing Paper Certificates of Title on Lenders
It is well known that from 11 October 2021, the old system of paper Certificates of Title and the Control of the Right to Deal (CoRD) framework was abolished. If you are reading about this for the first time, we recommend you catch-up here with our previous article.
The changes brought about by the NSW Government are part of the shift to 100% eConveyancing.
What does this mean for banks and other lenders who essentially control the registration of subsequent mortgages on title through the CoRD framework?
Previously, if a lender wanted to register a mortgage on title, that lender must first obtain the written consent of the first mortgagee. The process of obtaining consent can be time consuming and generally subject to the discretion of the first mortgagee. Where consent to reg
ister a mortgage is not granted, the alternative is an unregistered or equitable mortgage. In that case a lender will often lodge a caveat on title to notify and protect their interest under the equitable mortgage.
With the changes introduced on 11 October 2021, a second or subsequent mortgagee will no longer be required to obtain the consent of the first mortgagee to register a mortgage on title.
If the incoming mortgagee wishes to continue to obtain and provide evidence of the first mortgagee’s consent, they may to do so by uploading a consent in the PEXA workspace. However there is no obligation to do so and a mortgage will continue to be registered without it.
Despite not being required to provide mortgagee consent for the registration of a subsequent mortgage, mortgagors will need to consider any contractual terms with their first mortgagee that prohibits them from granting a subsequent mortgage over the same property.
Another reason to consider continuing to obtain first mortgagee consent is to protect the subsequent mortgagee from the rule against tacking. Until a first mortgagee is made aware that a second mortgage has been granted over the same property, any further advances that the first mortgagee makes will ‘tack’ onto the first facility and take priority over the amounts owing to the second mortgagee. Once the first mortgagee receives written notice of another mortgage, any further advances by the first mortgagee will rank in priority after the amount owed to the second mortgagee. This is known as “the rule against tacking”. The registration of a mortgage is not sufficient notice to prevent the rule against tacking but obtaining written consent from the first mortgagee is.
There does remain instances where mortgagee consent is still required to register certain interests on title. Such instances are prescribed by legislation. These include the registration a restriction on use, positive covenant, surrender of lease, variation of lease and transfer granting easement. A full list of these dealings can be found here.
Henry William Lawyers can assist with any related enquires. Feel free to contact our people:
Ron Zucker 0410 590 111
Steve Williams 0404 821 464
Vincent Tripodina 0408 228 108
Chelsea Woodward 0404 065 899
Anna Polhill 0431 174 352