Home » Purchasing a Property at a Mortgage Auction – Read This First!

The dream of owning a home is one that many people work hard to achieve. However, the process of buying a home is complex, with various legal hurdles to navigate. One such hurdle is the sale of a property by a mortgagee in possession. Unfortunately, legitimate purchasers have been denied the title to a home they paid for due to fraudulent mortgages, emphasizing the importance of getting sound legal advice on caveats and sales by mortgagees from solicitors.

Who is a Bona Fide Purchaser

A bona fide purchaser is a person who buys property in good faith and without knowledge of any defects in the title. In other words, they have no reason to suspect that the seller does not have the legal right to sell the property. They are also not a party to any potential fraud involved with the property. However, even bona fide purchasers can run into trouble when buying property from a mortgagee in possession.


Who is a Mortgagee in Possession?

A mortgagee in possession is a lender who has taken possession of a property due to default on the mortgage. The mortgagee can then sell the property to recover the outstanding debt. However, if the mortgage itself is fraudulent, the mortgagee does not have the legal right to sell the property.

What is a Caveat?

A caveat is a legal notice that can be lodged with the land registry to prevent the registration of any dealing with the property. This is important because it provides notice to anyone who may be considering buying the property that there may be a defect in the title. A solicitor can help a buyer to lodge a caveat and will be aware of possible risks surrounding the purchase.

What can go wrong?

The Supreme Court recently ruled a pair of unfortunate Gold Coast home buyers as not the official owners. The Buyers purchased a 1.26 million dollar home at a mortgagee auction in 2018. Five years later, the court stated the home, now worth 2.7 million, legally belongs to the previous owner. The title was never transferred into their name as the home was unlawfully mortgaged through fraudulent witnessing of the owner’s signature.

The previous owner had placed a caveat over the property in an attempt to stop the sale however after negotiating with the fraudulent mortgagees, it was removed and the property was sold. Soon after the purchase, she notified the Registrar of Titles of the fraud involved, and the Registrar placed a second caveat over the property, meaning the new owners could not transfer the title into their names. Five years later, they have now lost their home as the Supreme Court ruled that, as the mortgage was fraudulent, there was no legal right to sell it to the buyers. The original owner’s legal title to the property was held to be superior to the buyer’s right to ownership for paying the mortgagee the net sale proceeds.

This situation can be devastating for bona fide purchasers who have invested their hard-earned money into buying a home. Not only do they lose the property, but they may also face financial difficulties if they are unable to recover their funds from the mortgagees. This emphasizes the importance of getting sound legal advice on caveats and sales by mortgagees from solicitors.


Why get professional support?

By taking these steps, and engaging with a professional solicitor, buyers can protect themselves from potential legal issues and ensure that their dream of owning a home becomes a reality.

At Greenhalgh Pickard, we are committed to providing you effective and professional advice, guiding you through the process so there are no sneaky surprises.

Disclaimer: all information in this the information contained in this article is for general informational purposes only and is not intended to provide legal advice or substitute for the advice of an solicitor. This information may not be applicable to all situations and may not reflect the most current legal developments.