I loaned my son and daughter-in-law a lot of money at the start of their marriage to buy a house. They signed some papers saying that I would be paid back and giving me an interest in the property as security. They have made some payments but they have been raising a young family so I have not pushed them for more money. However now it looks like their marriage may be breaking up. I still want to be repaid the money they owe me but I don’t want to upset my son. Do I need to lodge a caveat over their property?
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Answer by Neha Sharma, Hillsdale 2036 NSW
- The holder of an unregistered interest over a property has no legal duty to lodge a caveat but there may be many good reasons for doing so.
- Under general legal principles where there are multiple competing equitable interests in a property the earlier in time has priority unless there has been some postponing conduct.
- In other words if someone with a similar interest to you comes along and lodges a caveat before you get around to it such as another mortgagee this may defeat your interest. This situation is designed to encourage people to register their interests formally for the sake of certainty.
- Courts have stated that if a priority dispute arises failure to caveat may amount to postponing conduct. Whether the courts will find your conduct to be postponing conduct depends on the circumstances of your case. For example it is likely that postponing conduct will have occurred if a person holding a prior unregistered equitable interest in a property does not declare it through lodging a caveat and a later interest in property is created by another person based on the assumption that there are no prior interests.
- This means that if you do not register your interest and the property is mortgaged or sold you may lose the interest that you hold in that property as security for your loan.
- If you lodge a caveat you will also be protected by the fact that a later unregistered interest holder cannot prevail over an earlier interest holder where they had notice of the earlier interest at the time of acquiring the later interest.