The Facts
Son obtains fraudulent mortgage and defaults on loan
Ms I was an 83-year-old woman who owned a property on Queensland’s Gold Coast.
In June 2017, Ms I’s son mortgaged the property as security for a $1 million loan to the family business.
He did so without his mother’s knowledge by forging her signature on the mortgage documentation.
He then defaulted on the loan.
Mortgagees take possession of property and owner lodges caveat
Upon the loan default, the mortgagees took possession of Ms I’s property and arranged to sell it at auction.
Ms I engaged a lawyer who lodged a caveat over the property on her behalf.
A caveat is a formal notice of warning to alert others that someone claims an interest in the property.
The stated grounds of claim in the caveat were that the purported mortgage was procured by fraud, and that the purported mortgagees had no power of sale over Ms I’s property.
Mortgagees sell registered proprietor’s property to purchasers at auction
Two days later, notwithstanding the caveat, the mortgagees sold Ms I’s property at auction to Mr and Mrs M.
The title search attached to the purchase contract was dated 9 January 2018, several months before Ms I’s caveat was lodged.
Settlement was scheduled for 24 April 2018.
Mortgagees extend settlement date to get owner’s caveat removed
On 19 April 2018, the mortgagees wrote to Mr and Mrs M, requesting an extension of the settlement period due to the caveat.
The letter also stated that the mortgagees were in the process of applying to the Queensland Supreme Court for the removal of the caveat.
The court was due to hear the application on 22 May.
Owner notifies Registrar of Titles that mortgage was fraudulent
On 10 May, Ms I emailed the Queensland Registrar of Titles, notifying the Registrar of her caveat and advising that her home had been “fraudulently mortgaged by criminals”.
On 21 May, an officer from the titles registry emailed Ms I to request further information.
Owner voluntarily removes caveat and settlement goes ahead
On 17 May, the mortgagees offered to pay Ms I $40,000 if she would remove her caveat.
She accepted the offer.
On 1 June 2018, Ms I provided a caveat removal request to the mortgagees. Settlement proceeded, and Mr and Mrs M took possession of the property.
Registrar lodges caveat, preventing buyers from registering their title
On 29 June 2018, the Registrar of Titles wrote to Ms I, noting that since her previous correspondence a caveat removal request had been lodged.
The Registrar also noted the “serious matters” previously raised by Ms I and asked whether she wished to provide any further information.
On 3 July 2018, Ms I responded, reiterating her fraud complaint.
On 9 July 2018, the Registrar of Titles lodged a caveat over the property, which it had legislative authority to do to prevent fraud.
On 16 July 2018, the Registrar wrote to Mr and Mrs M advising them of the Registrar’s caveat.
At that time, Mr and Mrs M had not yet been able to register the transfer that would have given them legal title to the property.
Registered proprietor commences legal proceedings
On 27 September 2018, Ms I commenced proceedings in the Supreme Court of Queensland against several parties, including the mortgagees, Mr and Mrs M, the Registrar of Titles and the State of Queensland.
Among other remedies, Ms I asked the court to rule that the mortgage was obtained by fraud and was therefore null and void. The court ruled in Ms I’s favour.
Having reached this conclusion, the court turned its mind to the next question: whose interest in the property should prevail? Ms I’s, or Mr and Mrs M’s?
On the date that the court handed down its decision, it had been approximately four and a half years since Mr and Mrs M had moved into the property and established their family home there, and since Ms I had commenced proceedings seeking to get her family home back.
Expert commentary on the court's decision
Court rules registered proprietor has indefeasible legal title
In Issa v Owens [2023] QSC 4, the Supreme Court of Queensland found in favour of the registered proprietor, Ms Issa, and directed the Registrar to cancel the transfer of the buyers, Mr and Mrs Morecroft.
The court rejected Mr and Mrs Morecroft’s argument that the dispute was a contest between competing equities.
The contest was instead a contest between Ms Issa’s indefeasible legal title and the Morecrofts’ equitable interest.
Indefeasible legal title means that because Ms Issa’s name was listed on the registry as the registered owner of the property, her claim over the property could not be challenged by a third party, unless one of the statutory exceptions to indefeasibility applied.
In this case, no such exception applied.
The court therefore found that there was no basis to conclude that Ms Issa’s indefeasible legal interest should be postponed to the equitable interest of Mr and Mrs Morecroft.
Registered proprietor also has the better equity
The court noted that much of the argument advanced on behalf of Mr and Mrs Morecroft focused on competing equitable interests, which “… in that respect was misdirected and failed to grapple with the true nature of Ms Issa’s interest”.
The court then stated that even if it considered the matter as one between competing equities, Ms Issa would have the better claim.
Their reasons included that at the time Mr and Mrs Morecroft acquired their equitable interest, Ms Issa’s caveat had already been recorded on the register. The caveat operated as a “notice to all the world” of her interest and would have been apparent to anyone who searched the register.
Mr and Mrs Morecroft did not search the register, and instead relied on the outdated title search attached to the purchase contract, simply assuming that the mortgagees were able to transfer the legal title to the property.
Further, it could not be said that any act, omission or representation by Ms Issa, such as a failure to warn the Morecrofts, induced them to enter into the purchase contract.
Finally, the court did not consider Ms Issa’s conduct of agreeing to withdraw her caveat to be unmeritorious conduct of such a kind that her interest should be postponed to the Morecrofts’ interest.
State of Queensland ordered to pay compensation to property buyers
The Morecrofts also claimed compensation against the State of Queensland under the Queensland Land Titles Act 1994, for compensation for deprivation of an equitable interest because of the “fraud of another person”.
The court ruled in favour of the Morecrofts, ordering the State of Queensland to pay the couple $2.7 million, the current value of the property.
In State of Queensland v Morecroft & Anor [2024] QCA 11, the state appealed this ruling but was unsuccessful.
Buyers of real estate should conduct a thorough title search
Although the Morecrofts won compensation, they had to endure a protracted legal battle and were ultimately required by the court to vacate the property.
A case with similar facts to theirs would be unlikely to happen again in Queensland, because electronic conveyancing (or e-conveyancing) became mandatory in Queensland in February 2023 for certain types of instruments and documents.
E-conveyancing reduces the risk of fraud and is also mandatory in New South Wales, Victoria, South Australia and Western Australia.
However, this does not mean title searches are unnecessary. In fact, they are still absolutely essential.
The title search process enables the buyer to verify that the seller is legally entitled to sell the property, to identify claims against the property that might impact ownership, and to identify restrictions that might impact the value or use of the property.
The title search process can be complex, and it is advisable to seek the guidance of a professional.