A mortgagor has sued for the cash loss resulting from a mortgagee’s sale of his secured property at what he claims, was at undervalue. In a private transaction Leo Knezevic – who had operated a successful adhesives and coatings business – lent $300k to his son Peter to assist with the buy of a property at Greenfield Road, Capalaba, in April 2003.
Wizard home loans advanced $260k on first mortgage with Leo’s loan secured by second mortgage.
But just over two years later – after he and his partner Denise Whittaker had ceased day to day involvement – the company faced liquidation. In December 2005, Leo called for repayment of the loan.
A notice excising power of sale was served and vacant possession called for.
To take the home to auction, Leo engaged agent Randal Curry, who found a buyer keen to go to contract before the appointed auction date in May 2006.
With no valuation in hand, Leo accepted the agent’s recommendation that the offer price at $655k was “top dollar”. He signed up then and there.
Peter lodged a caveat in protest but – as a result of a Supreme Court order made in May 2006 – it was removed and the sale was settled.
The borrower waited almost 6 years before filing a claim and by the time the dispute came before the District Court in Townsville, Leo had recently died.
Defended by Whittaker as personal representative of Leo’s estate, she contended the sale had been properly performed.
Peter though, asserted that the worth – of $770k – attributed to it by expert valuer Alan Tully, demonstrated the measures to attract a fair market price, had clearly been inadequate.
The residence had in fact been re-sold again less than two years later, in February 2008, for $950k.
Judge Stuart Durward SC ruled that the sellers had not exercised all reasonable care in obtaining fair market value for the home.
Although it might be possible for the mortgagee’s duty to be fulfilled by private sale before auction eg to an “over exuberant purchaser”, this was not such a case. The proper course was to have consulted more widely rather than opt for a “quick sale”.
“The property should have been marketed in the customary way by auction so that the market could set the sale price” and a proper valuation obtained.
Mr Curry’s view of what was “top dollar” – although authoritative – was insufficient.
The estate was ordered to pay the borrower $115k being the difference between the actual sale price and its fair market value, plus interest of nearly the same sum again, plus legal costs.