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42/1995 S19 DSHA Purchasers & Borrowers after 091287
National Office Instruction
amending General Orders (1993 edition)
Instruction No. 42
Date of Effect: 11 September 1995
SECTION 19 of the DSH ACT
PURCHASERS & BORROWERS after 9 DECEMBER 1987
The purpose of this Instruction is to clarify when a person ceases to be a purchaser or borrower for the purposes of section 19 of the Defence Service Homes Act 1918.
A recent case offered a different interpretation on the application of section 19 and has highlighted the need for an instruction clarifying this issue.
A client enquired about his entitlement to a further advance, advising that his initial loan was repaid on 2 December 1987. A search of the relevant property title revealed that the discharge of the DSH mortgage was registered on 14 December 1987. The current practice is to advise the client that, since his loan was discharged before 9 December 1987, he fails to meet the requirements of section 19 in that he was not a borrower on that date.
Section 19 requires a person to be a purchaser or borrower in relation to a Corporation advance, a subsidised advance or a contract of sale on or after 9 December 1987. This is interpreted by Entitlement GO 3.7.2 as meaning that a person who discharged his/her liability prior to 9 December 1987 is not entitled to further assistance.
The line of investigation adopted focussed on the definition of "borrower" which is described in the DSH Act as "... a person who is liable to pay the outstanding amount:...". Research along this line included reference to the authoritative legal text "Mortgages and Securities" by Francis & Thomas (3rd ed.). At page 356 under the heading Effect of a Discharge is the following:
"In the absence of an express agreement to the contrary, the registration under the Torrens statutes of a discharge of mortgage will operate to discharge the mortgagor from his personal obligations as well as to release the land from the encumbrance."
The standard forms of Discharge of Mortgage used in Corporation offices in each State were basic forms, with sufficient detail for their purpose. There were no words in these forms expressing a continuing obligation by the outgoing mortgagor nor any reservation of powers on behalf of the Corporation once the mortgage was discharged. Therefore, according to the legal reference, Corporation clients were only relieved of the obligation to pay under the mortgage when the Discharge of Mortgage was registered.
The following example, using the facts from the initiating case, demonstrates the logic involved:
- on 2 December 1987 the client or his agents tendered an amount of money which had been previously advised to him as the amount required to pay the mortgage loan; settlement proceeds;
- on 14 December 1987 the discharge of the mortgage to DSHC was formally registered at the Titles Office;
- between these two dates, the client's obligations under the mortgage, including the obligation to pay principal and interest, continued to exist;
- in the event that the amount tendered on 2 December 1987 was insufficient to discharge in full the monetary liability under the mortgage (whether this occurred as a result of a mistake made in advising the client or a mistake made in receiving the money), the client would have remained liable to pay any outstanding amount under the terms of the mortgage. Similarly, DSHC would have retained the right to demand such payment according to the mortgage;
- since there is a continuing obligation to pay which does not cease until registration of the Discharge of Mortgage, it is not unreasonable to conclude that the client is caught by the definition of "borrower" in the DSH Act. If a demand had been made upon the client after 2 December 1987 (but before 14 December 1987) for payment of any money outstanding under the mortgage, the client would have been liable.
On this basis, those clients who paid off their loans just before 9 December 1987 but whose discharge of mortgage was not registered until on or after that date may still have a DSH entitlement to a further advance (subject to the 25 year rule). This group of clients is not expected to be large having regard to anecdotal evidence from the Data Capture Exercise. However, in most cases, determining the date the Discharge of Mortgage was registered will require a search of title. Where the Corporation actually lodged the documents, State Offices may have access to other sources, e.g. lodging books, etc.
Staff will be aware of the need for sensitivity in handling entitlement queries from clients who discharged their previous loans in the weeks leading up to 9 December 1987. It is suggested that a "cut-off" date be determined to simplify administration. This date would be based on local conveyancing practice in each State, that is, what is a reasonable time to lodge documents at the Titles Office following settlement? If a reasonable time is one week, then clients who discharged prior to 1 December 1987 will be assumed to have had a discharge of mortgage registered before 9 December 1987.
The initiating case and the new interpretation have been predicated on the title being held under the Torrens system. Similar cases involving General Law title will be unchanged since the effective date for the transfer of an interest is the date of the deed. Unlike the Torrens system, the date of lodgement at the Titles Office is not an imperative in determining priority. The majority of Corporation securities were held under the Torrens system, and therefore the number of cases involving the General Law system of title affected by this new interpretation will be negligible.
Policy to be applied
Further advance enquiries by clients whose previous loan was discharged in the period immediately before 9 December 1987, and whose loan term has not exceeded 25 years, should be investigated to determine the date of registration of the Discharge of Mortgage. The period immediately before 9 December 1987 will be determined locally by each State Office having regard to their conveyancing practices. Investigation can include a search of title, where necessary, although evidence from other sources should be considered first.
In Torrens title cases, where investigation reveals that the discharge of the DSHC mortgage was registered on or after 9 December 1987, the client should be advised that there is access to a further advance entitlement, subject to our usual requirements. Clients whose previous loan was secured under the General Law will still need the date of the reconveyance/statutory receipt to be 9 December 1987 or later in order to gain access to a further advance entitlement.
A new sentence is to be added to Entitlement GO 3.7.2:
Where the previous liability was discharged in the period immediately prior to 9 December 1987, the date of registration of the discharge of mortgage should be ascertained to determine when the person ceased to be a borrower for the purposes of section 19. [NOI 42 of 6 September 1995 also refers.]
Attached are amended pages 23-26 for the Entitlement General Orders. Please replace the existing pages with the amended version.
Effect on previously issued NOIs
This Instruction has no effect on any previously issued operative NOI.
A J P GUNNING
Atg General Manager
6 September 1995