Payment of Funds out of Court: Equitable Mortgagees and Caveat Loans

A common scenario for unregistered mortgagees/equitable mortgagees is that, following possession and sale by a registered mortgagee, the registered mortgagee has paid the surplus sale proceeds into Court. While the mortgagee as trustee is empowered to distribute the funds in accordance with section 58(3) of the Real Property Act 1900 (NSW), many (at least in my own experience) prefer to pay the funds into Court pursuant Part 4 of the Trustee Act 1925.

The payment of the surplus funds into Court is by way of Summons (drafted in accordance with UCPR 55.9) and affidavit in support (in accordance with the requirements of UCPR 55.10).

For the equitable mortgagee to realise its entitlements to the surplus funds, it must apply to the Court in accordance with UCPR 55.11. Briefly, that is by way of Notice of Motion in the existing proceedings. On its application, it is incumbent on the equitable mortgagee to satisfy the Court of the following:

  1. The Applicant is the person primarily entitled to the funds and the basis of that entitlement;
  2. The Applicant has a beneficial interest in the specific funds paid into Court (and that it is not, for example, merely an unsecured creditor); and
  3. All other interested parties are on notice of the application.

Therefore, any affidavit in support must be mindful of the above requirements. A starting point is to include the security documents, a title search and evidence that funds are still owing under the mortgage. If there are competing claims, the applicant would need to face a strict task of proving their priority. In that event, the admissibility of evidence will become somewhat more significant than in unchallenged applications.

Ari Katsoulas is a Sydney Barrister practicing extensively in Mortgage Disputes.