A Mortgagee’s Liability for Body Corporate Debt

A Mortgagee’s Liability for Body Corporate Debt

The Queensland Court of Appeal has recently considered the question of whether the definition of “body corporate debt” encompasses ‘recovery costs’. The Court of Appeal’s answer was essentially “yes”.

This conclusion has significant consequences for the mortgagee of a body corporate or strata title lot, where the owners are not only liable for outstanding body corporate contributions but also the body corporate’s significant recovery costs. Recovery costs usually includes solicitor’s costs of pursuing the debt.

“Body corporate debt” means—

(a)  a contribution or instalment of a contribution;

(b)  a penalty for not paying a contribution or instalment of a contribution by the date for payment;

“Owner” means:

• (a)  the person who is, or is entitled to be, the registered owner of the lot, and includes—

o    (i)  a mortgagee in possession of the lot

A purchaser from the mortgagee is liable for the costs incurred by the body corporate in seeking to recover outstanding contributions from the existing lot owner regardless of whether those costs have been incurred by the body corporate before the financier becomes mortgagee in possession

Action to take for a solution

From the perspective of the prospective buyer from the mortgagee, before purchasing a property it is prudent to;

•         search the body corporate records to check not only the amount of any body corporate contributions owing by the mortgagor, but also what steps, if any, have been taken by the body corporate to recover such contributions and the costs incurred in taking such steps.
•        the buyer should also include a term that the mortgagee is responsible for discharging any “body corporate debt” (including recovery costs incurred by the body corporate).

Liability to pay a body corporate debt is enforceable jointly and severally against the person who is the owner of the lot and a person (including a mortgagee in possession) who becomes an owner of the lot before the debt is paid. If there are two or more co-owners of a lot, the co-owners are jointly and severally liable to pay a body corporate debt in relation to the lot.

Holding Deposit Money

Disputes about trust money for sales of lots and proposed lots

What happens where a deposit is held in a trust account and, before the amount is paid a dispute arises between the parties to the contract?

A “person having an interest” in the amount does not include th

e agent or solicitor acting for one of the parties in relation to the sale or purchase of the lot.

Where a dispute has arisen or is likely to arise, the stakeholder may give all persons with an interest in the amount a written notice, which explains:

ü  The practice considers that a person is entitled to the amount, and

ü  The stakeholder is authorised to pay the amount to the stated person, and

ü  This will occur on or after a specified date (at least 60 days after notice is given) unless;

û  A proceeding is started by another who disputes the stated person’s entitlement, or

û  Everyone who has an interest in the amount authorise payment of the amount to the stated person before the stated date.

A stakeholder can pay the amount to the stated person if, after the stated date, they are still unaware of the start of a proceeding in relation to the amount.

Importantly, the stakeholder will not be breaching the trust money protection legislation by disbursing the amount in this way.

If the stated person was not actually entitled the amount, the stakeholder is not liable.

The above is merely a process which a firm or agency may choose to follow. A stakeholder is also able to hold on to the amount until;

1. a)    The Court directs whom to pay the money to, or
2. b)    All persons having an interest in the amount authorise payment.

New South Wales takes aim at underquoting real estate agents

Reforms targeting at reducing under quoting commenced earlier this year

So what’s changed?

For a start, you won’t see “Offers over $1,000,000” or “$500,000 plus” anymore. The floor price has been removed. It is hoped that this will reduce vague price guides being given to prospective buyers. Selling agents are now required to give an evidence-based estimated selling price, and may potentially need to show how they arrived at that figure. The selling agent cannot then use a price less than their evidence-based estimate.

An agent cannot quote a price less than their lowest estimate. If the agent does provide a price guide or range then the upper limit must be within 10% of the estimate. For example if the agent estimates the lowest price would be $500,000 then the agent may quote $500,000 - $550,000.

If an agent receives market feedback indicating that their estimate is out of date and needs to be amended, then the agent must amend it immediately.

Whenever an agent discusses price with a prospective buyer or their seller, that conversation must be recorded in writing.

Finally, agents now face harsher penalties for underquoting. An agent can lose their commission as well as receiving a $22,000 fine.

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