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Have home loan approvals become too complicated?

Yes, according to the Federal Treasurer, Josh Frydenberg.

Last Friday he gave notice to ASIC that home loans and investment loans will be overseen by APRA as from 1 April 2021, and that responsible lending rules will be watered down or scrapped. His aim is to 'remove barriers to the flow of credit' and make loans easier to obtain.

As expected consumer advocates are resisting the proposals saying that watering down lending rules will encourage predatory lending.

But where's the evidence?

I decided to survey some recent decisions and found that the current responsible lending rules are fair to both borrower and lender.

My conclusion is that the rules should be kept but simplified. To see my survey of the decisions and for more information click on Should responsible lending laws be simplified or scrapped?

If your bank makes a mistake, do you tell them?

The Wernhards must have thought it was Christmas because when they sold their investment property, their bank - Citigroup handed over the Title Deeds not only for that investment property but for two other properties as well.

It was Citigroup's mistake to release the Title Deeds to the other two properties because the Wernhards still owed $309,000 to Citigroup.

The Wernhards decided not to tell Citigroup of its mistake and registered the discharges of mortgage they received. They soon sold one of the other properties and pocketed the proceeds of sale, instead of paying down their line of credit for that property with Citigroup.

Four years later, in 2016, Citigroup discovered its mistake. It asked the Wernhards to re-mortgage their remaining property, their home at Watanobbi (near Wyong on the Central Coast). The Wernhards refused. Not long after, they ceased to make repayments on their loan.

On 1 March 2019, the NSW Supreme Court ordered the Wernhards to re-mortgage their home to secure a debt of at least $313,000 plus the legal costs they must pay to Citigroup because they lost the court proceedings which would be in the range of $75,000 to $100,000.

In the light of the penalty interest and the legal costs payable, their decision not to tell Citigroup of its mistake will cost the Wernhards well over $100,000 and is likely to cost them their home.

Should the Wenhards have told their bank of its mistake? It's hard to tell, because after all, they had the benefit of the proceeds of sale of the second property which amounted to $190,000 for several years.

For my case note click on Must borrowers act conscionably towards their lender?

Eight words make all the difference if you want a Caveat to secure a loan

A Caveat can be an effective way of securing the repayment of loan, but only if it's valid.

When a Caveat is registered over the title to a property, it protects the person registering the Caveat (the "Caveator"). This is because a Caveat prevents the property owner from transferring or refinancing the property without obtaining the consent of the Caveator.

Ta Lee Investment loaned $1.5 million to MV Developments to buy a development site at Lane Cove. It agreed not to lodge a caveat unless MV Developments failed to repay the loan on time.

The development took longer than expected to complete, and Ta Lee Investment lodged a caveat as security for repayment of the loan.

But in the meantime, MV Development had sold the apartment upon which the caveat was registered. The buyer commenced proceedings in the Supreme Court to remove Ta Lee Investment's caveat, claiming it was invalid because the Loan Deed did not use the correct wording.

The NSW Court of Appeal ordered that the Caveat be removed because the Loan Deed did not contain these eight words: the property is charged with repayment of the loan.

As a result the Caveat was invalid as security for the loan.

The moral is, when a Caveat is used to secure a loan, make sure you use the correct wording.

For my case note, click on When the right to ‘lodge and maintain a caveat’ is not enough

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