The farmer who lost his farm – Why use a Caveat?

A Caveat is a notice that a person can give to the registrar of  titles.  It will generally stop anyone else registering any interest on a title to land.

So why would someone want to stop another person from registering an interest on a title.  Let me tell you about a case that I was involved with, it illustrates better than any explanation why caveats are so important.

About 10 years ago I acted for a farmer.  He lived on his Macadamia nut farm with his wife. He had been given the farm by his father.

His daughter had found herself in some trouble and decided that she needed money.   In order to get that money she went to a private lender.  As you know lenders don’t lend money unless they receive  a mortgage in return.  The mortgage is their assurance that they will be paid.  A mortgage is a right given to a lender to sell a property to pay a loan.   The daughter had no house to mortgage.

What could she do?

The daughter decided to forged her fathers signature on a mortgage of  her father’s farm.  She gave that mortgage to the lender to support her loan.  If my recollection is correct the loan was for about $400,000.00.  In order to hide the fact of the loan from her father she made all the payments of interest using the borrowed funds and when those funds ran out she repeated the process.  The first the father knew about any of this, was when he was served with a notice to get out of the property.

Now you will say that the father did not sign the mortgage.  How can he be affected by a mortgage that he did not sign! The farmers  signature was a forgery so the mortgage should have no impact on him.  If we were talking about a contract then that would be true.  If  I forge your signature on a contract, you are not bound to the contract, I am!  But I am afraid that in the case of  registered interests in land/houses you would be wrong!  Very wrong!

In Queensland we have a system called indefeasibility.  What this means is that once an interest is registered on a title to land, that is the end of that matter.  The interest can be enforced by the person who gets registered.  The mortgage in this case was registered and the lender could use the mortgage to sell the farm.  The farmer had to get out.   It is also the case that if two people register an interest the person who gets registered first, even if by a moment, gets her interest satisfied first.  This  sometimes leaves nothing for the person registered second.  This is why a second mortgage is better than no mortgage at all but, often it is not much better.

Of course there are exceptions.  There are always exceptions!  One of these exceptions is fraud.  But it has to be fraud by the person claiming the interest.  Think about this.  Who was claiming the interest?  It was the lender claiming the interest! The person giving the money to the daughter, was claimed the interest in the mortgage.  It was accepted that the lender did not know about the forgery.  The lender thought that the signature of the farmer was real.  The signature had been witnessed!  (That’s another story!)

So what does all this have to do with a caveat?  Well a caveat registered over a title prevents anyone from registering an interest on the title.  If  in the above story the forgery had been discovered before the mortgage was registered a caveat could have been lodged and the situation would have been completely different.  The farmer would not have lost his farm. Instead, the lenders would have lost their money.

There are lots of situations where someone may want to register a caveat.  One common case is when you have an interest in a property but for one reason or another that interest is not noted on the title.  It may take some time to get the interest noted on the title.  It may be necessary to wait while the exact rights of parties are determined.  While  waiting to resolve these things someone else might register their interest or, a mortgage may be registered or, the property may be sold and the money from it disbursed.  A caveat if it can be registered would prevent all these things.

But it is not always straight forward to register a caveat.  Legal advice is essential.  There are some significant traps that need to be avoided.

So what happened to the farmer?  Well, if you lose your Queensland property because of registration connected with a fraud, you are entitled to make a claim for compensation from the State of Queensland.   This is what we did.  The farmer received compensation and we recovered 100% of his legal costs on an indemnity basis.  It took several years.  The farm had been in the family for so long and was such a big part of his life that the compensation never make up for it but, it was the best result in the circumstances.

The State of Queensland had to be sure that the farmer was not himself involved in the fraud so his evidence was tested by cross-examination in the Supreme Court.  Over the time the farmer and I became close friends.  For me it was an exciting trial with the best possible result but,  it was a time that my farmer friend is happy to forget.

You might wonder why the farmers wife did not get any sympathetic comment.  It is thought that she knew more about events than she should have.

Joe Riba

Riba Business Lawyers

Strength Through Knowledge

Franchising, Leasing, Acquisitions

Head office:  34 Duporth Avenue, Maroochydore, Sunshine Coast, Queensland.

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