Last updated 9 August 2016
Often loans are secured by a mortgage. A mortgage gives the lender the right to seize and sell goods or land when a borrower defaults. Default is defined in the contract but can include failure to make a loan repayment when due. The National Credit Code (Credit Code) prohibits mortgages over household goods unless the accompanying loan is used to purchase the goods.
The consequences of defaulting are dealt with on the pages Repossession of Goods When Unable to Make Loan Repayments and Repossession of Property When Unable to Make Loan Repayments.
Unfair mortgages are prohibited under the Credit Code. This means that:
- mortgages cannot be applied to continuing credit (credit cards) unless goods are specified
- a mortgage cannot attempt to secure all property or property purchased in the future (ss 44–45)
- all accounts (i.e. every account with that bank) mortgages cannot be enforced (s 47)
- the mortgage is unenforceable if the mortgagor is not the same person as the debtor (s 48)
- essential household property and personal property protected in bankruptcy (s 116(2(b)(i) Bankruptcy Act 1966 (Cth)) cannot be mortgaged unless a particular good is purchased on credit (e.g. if a consumer buys a fridge from a retailer on credit, this can be used as security for the loan). However, a creditor cannot lend generally against a fridge and other essential household goods the consumer currently owns.
Generally, goods and land that are mortgaged cannot be sold without the permission of the lender who has the mortgage. If goods are sold without permission, the borrower may have acted fraudulently and could be charged with a criminal offence.
A security interest (i.e. a mortgage over goods such as a car) is searchable with the Personal Property Securities Register. The Personal Property Securities Act 2009 (Cth) established the register for goods except personal and household goods under $5000, unless security was taken to purchase those specific goods on credit. These goods are given a unique identifying serial number and can be searched on the Personal Property Securities Register.