Gogos v Gogos - [2012] SASC 45

Supreme Court of South Australia
(Applications Under Various Acts or Rules: Application)
GOGOS & ANOR v GOGOS & ORS
[2012] SASC 45
Judgment of The Honourable Justice Kourakis (ex tempore)
15 March 2012
REAL PROPERTY - TORRENS TITLE - CAVEATS AGAINST DEALINGS - REMOVAL - PARTICULAR CASES
Application to extend time for removal of caveat pursuant to s 191(g) of the Real Property Act 1886 pending outcome of appeal – caveat lodged protecting applicants’ unregistered mortgage over respondent’s property – respondent required by terms of loan agreement to obtain applicants’ consent to sale of property – property sold at auction to third parties for a sum resulting in no return under the appellants mortgage – no consent to sale at auctioned price - whether any reasonable prospect that appellants would receive more than a nominal repayment under their mortgage if application granted and property placed back onto market.
Held – application refused
Real Property Act 1886 (SA) s 191(f)(g), referred to.
Pua Hor Ong v Wu You Yang Pty Ltd (2008) 103 SASR 9; Cini v Pets Paradise Franchising (SA) Pty Ltd (2008) 102 SASR 177; Nexus Mortgage Securities v Mawson KLM Holdings & Starmaker (No 51) Pty Ltd (1997) 193 LSJS 474; Manttan v Equititrust Ltd [2010] NSWSC 931; Toma Services Pty Ltd v Kusido Hospitality and Property Group Pty Ltd [2008] NSWSC 492, considered.

GOGOS & ANOR v GOGOS & ORS
[2012] SASC 45

KOURAKIS J (ex tempore): This is an application for an interlocutory order pursuant to s 191(g) of the Real Property Act 1886 (the Act) extending the period after which the Registrar is required to remove a warned caveat pursuant to s 191(f) of the Act. The caveat protects an unregistered mortgage over a home in suburban Adelaide. The house has been sold on a contract which, if completed, would allow a first mortgage to be repaid, almost in full, but with no remainder for the second mortgage.
The applicants before me unsuccessfully applied in the District Court for an order extending the time for removal of the caveat. Their application was refused by a master. They appealed to a judge of the District Court. The Judge of the District Court dismissed the appeal. The applicants have lodged an appeal from the Judge’s order in this Court. They seek the interlocutory order to which I have referred pending the hearing of the appeal.
In my view the applicants have a reasonably strong case that the Master gave insufficient weight to the nature of the underlying security protected by the caveat. In particular, it is my view that in the ordinary course, and assuming there is equity in the charged land, only in exceptional circumstances would an order extending the time for removal of a protective caveat be refused. Where a prima facie case is established by the caveator, the balance of convenience is likely to favour protection of his or her interest in land.[1] The circumstance that there is no equity available in the land after payment of a prior mortgage to satisfy the security, operates in defeasance of that rule and reverses the usual balance of convenience.
[1]Pua Hor Ong v Wu You Yang Pty Ltd (2008) 103 SASR 9 [66]; Cini v Pets Paradise Franchising (SA) Pty Ltd (2008) 102 SASR 177.
In my view there is also a reasonably strong case that the Judge of the District Court erred in that, even though she received further valuation evidence which, if accepted, showed that there was substantial equity in the home, she proceeded on the basis that the applicants had to demonstrate an error in the exercise of the Master’s discretion. The Master had exercised his discretion in the absence of any probative evidence that the house might obtain a higher sale price than it received at auction. It follows that having received the further valuation evidence, there is a strong case that the Judge of the District Court ought to have exercised her discretion afresh.
I now turn to say something more about the facts. The applicants, Mr and Mrs Gogos, are the parents of the respondent, Ms Vivian Gogos. Ms Vivian Gogos purchased a house in Westbourne Park (the Westbourne Park property) in September 2006 for $467,000. The purchase of the house was financed with a loan from Westpac in the sum of $380,000 and a loan from Mr and Mrs Gogos in the sum of $170,000. Mr and Mrs Gogos advanced the sum of $170,000 pursuant to a written loan agreement (the loan agreement) on the security of a mortgage in registrable form which was not in fact registered. A caveat protecting the mortgage was prepared but not lodged until October 2011. It was a term of the loan agreement that the Westbourne Park property would not be sold without the consent of Mr and Mrs Gogos. Ms Vivian Gogos has neither denied her indebtedness nor impugned the validity of the mortgage. The “serious issues” to be determined is for all practical purposes conceded by her.
In September 2009 Ms Vivian Gogos refinanced the purchase of the property. As part of the refinancing arrangements the sum of $70,000 was paid to Mr and Mrs Gogos for their own purposes. The Master in the District Court proceeded on the basis that the amount owing to Mr and Mrs Gogos was therefore likely to be something just under $100,000.
In late 2011 Ms Vivian Gogos attempted to sell the Westbourne Park property. Mr and Mrs Gogos were living in it at the time and, as I understand it, still reside there. The attempts to sell the property were not successful. Having regard to the evidence put before the District court, I proceed on the basis that Mr and Mrs Gogos knew that the property was being sold and that they, at the very least, never objected to the property being sold if it could be sold for $550,000 or more. If that is so, Mr and Mrs Gogos were plainly prepared to countenance a sale through which they would receive less than the debt secured over the property. However, that evidence does not show that they consented to a sale at a price that would leave them without any repayment of the loan at all. In the course of submissions, counsel for Ms Vivian Gogos intimated that if the case were to proceed it may be contended that the presence of Mrs Gogos at the auction, either in itself or together with other circumstances constituted consent to the sale. The mere presence of Mrs Gogos could not do so and there is no evidence of any other circumstance which might establish express or implied consent.
Ms Vivian Gogos marketed the property through the real estate firm Harris Real Estate. The house was initially marketed at a price of $700,000 but throughout 2011 and into 2012 the asking price steadily fell. It went from $750,000 to $700,000 to $610,000 to between $590,000 and $610,000, and then on 3 January 2012, to $550,000.
The property was in fact auctioned on 28 January 2012. It was sold to Mr and Mrs Wang for the sum of $481,000. Mr and Mrs Wang were joined as interested parties in the District Court and are also respondents, although described as third parties, to this appeal and application.
On the hearing of the appeal in the District Court, the Judge received as further evidence a valuation obtained by Mr and Mrs Gogos which valued the Westbourne Park property at $550,000. The submission of the applicants before the Judge, and before me, is that on that valuation even after taking into account the extra costs of marketing the property all over again, they will receive a repayment of an amount in the order of $30,000. That amount is estimated by deducting from $550,000 the costs which would be incurred in selling the property and which would be repayable to Westpac which holds the first mortgage over the property. A sale date of 2 June 2012 has been assumed for this purpose. Those expenses are:
·the payout to Westpac as of 15 March, in the sum of about $480,300;
·the interest that would accrue by 2 June 2012, in the sum of $7,100;
·Westpac’s costs, which are recoverable under the mortgage, for the enforcement proceedings they have taken, in the sum of $7,400;
·Westpac’s estimate of its further costs in prosecuting its application for possession, in the sum of $2,500;
·an adjustment of rates, in the sum of $5,400;
·future selling fees, both the agent’s commission and advertising fees, in the sum of about $13,000.
On my calculations the total of these costs is $515,700. There is a possibility that there is some overlap between the Westpac payout estimated as at 15 March and the enforcement fees to which I have referred. On the other hand it may well be that the estimated selling fees, and in particular the amount allowed for advertising, in the figures I have set out above are too low.
The principle I will apply is that if there is any reasonable prospect, on the material before me, that the applicants will receive anything more than a nominal repayment of their advance, their application should be granted. I have formulated the principle in that way for the following reasons.
The very purpose of obtaining the mortgage in registrable form and protecting it with a caveat was to secure their loan against the equity in the Westbourne Park property and to maximise prospects of repayment through the sale of the property.
The sale at auction in the sum of $481,000 was made without their consent, in contravention of an express term of the mortgage and loan agreement. The substantial weight which should be accorded to the interest of a secured creditor has often been recognised.[2]
[2]Nexus Mortgage Securities v Mawson KLM Holdings & Starmaker (No 51) Pty Ltd (1997) 193 LSJS 474; Manttan v Equititrust Ltd [2010] NSWSC 931 at [32] – [44].
Ms Vivian Gogos’s interest in being able to sell the property in a way which will minimise her obligations to Westpac, and relieve her of any potential liability to Mr and Mrs Wang, should be accorded very little weight. Indeed I doubt that it can be described as an interest at all because of the express term of the loan agreement to which I have referred. Assuming for these purposes that it is an interest which must be balanced against Mr and Mrs Gogos’s interests to enforce their security it must, as I have explained, be given very little weight.
I also proceed on the basis that in applications concerning the removal of caveats protecting mortgages, the interests of third parties, if entitled to any weight at all, are also only entitled to very little weight. I say that again because the very point of caveating a mortgage is to protect the caveators against subsequent purchasers and people who take an interest in the property. Unless the substantial weight to which I have referred is given to the rights and interest of the security holder who has caveated his or her interest, the security could readily be defeated by the unlawful conduct of the caveatee.
For all the above reasons, I proceed on the basis that if a reasonable prospect of obtaining more than about $515,700 is shown, then the time for removal should be extended. I should explain that by reasonable prospect I do not mean more than a 50 per cent chance; I mean simply a realistic chance. In my view if there is a realistic chance of obtaining a sale price which will secure more than a nominal repayment of the second mortgage, then the applicants should be allowed to enforce their security for the very purpose for which it was given.
On the other hand if there is no realistic prospect of obtaining more than $515,700 there is no point in putting the other parties to unnecessary expense. In particular it would be wrong to burden Westpac with costs which would diminish the value of its security.[3]
[3] Toma Services Pty Ltd v Kusido Hospitality and Property Group Pty Ltd [2008] NSWSC 492.
Equally, if there is no realistic prospect of any repayment from a resale, there is no point in subjecting Ms Vivian Gogos to future potential liability in an action brought by Mr and Mrs Wang.
I turn therefore to the question of whether there is any reasonable prospect, in the sense that I have explained, of Mr and Mrs Gogos obtaining any repayment of the principal they have advanced or the interest which has accrued.
I have formed the view that there is no such realistic prospect for the following reasons.
First, and primarily, the best guide to the market value of the Westbourne Park property is the value obtained at the recent auction. Mr McNamara in his submissions made some tentative criticisms of the marketing campaign which preceded the auction, but those criticisms were not supported by any evidence put before the District Court, or before me. Secondly, the expert valuation on which the applicants relied before the Judge in the District Court did not explain how the valuation of $550,000 was determined when the auction price was only $481,000. The failure of the valuer to explain how he fixed a substantially higher valuation than the price obtained at the auction seriously undermines the weight of his report.
The criticism which I have just made of the applicants’ valuer is supported by a valuation of CBRE which was tendered by the respondent and received by me today. I accept the submission of Mr McNamara, that the CBRE report is unlikely to be based on much more than the auction evidence to which I have just referred. The report does however, mention some other comparable sales. It does not suggest that there is anything untoward or surprising about the auction price.
Thirdly, the reports of CBRE and the applicants’ valuer refer to a softening of market conditions for the sale of houses in Westbourne Park. Their expert assessments are reinforced by the quite dramatic reductions in the asking price for the Westbourne Park property in this case over the last half of 2011. The reports also refer to a downturn in economic conditions and confidence generally.
Having regard to all of those matters, I can have no confidence that conditions will turn around by 2 June 2012 to the extent that the price of real estate generally, and to the Westbourne Park property in particular, will increase by something in the order of 5 per cent. Of course if one is to contemplate a longer marketing period that will only increase the costs which will be payable to Westpac.
I remind myself of the difficulties in prognosticating about matters of this kind on an interlocutory application and on the basis of hastily gathered evidence. Nonetheless for the reasons I have given, I am satisfied that there is no realistic prospect of bettering $515,700. I refuse the application to extend the time for the removal of the caveat.