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Background
Under clause 38 of the Code of Banking Practice the bank has agreed to publish guidelines setting out the manner in which it will:
a) deal with applications for transfers of mortgage and consents to transfer of title pursuant to a Family Court determinations or approvals; and
b) otherwise enforce debts affected by a family law property settlement.
These guidelines are to assist parties to a marriage, their legal practitioners and representatives with family law property proceedings relating to:
Liabilities
A person's liability to the bank can be either as a borrower or as a guarantor of another person's borrowing from the bank. In these guidelines, a reference to a liability to the bank includes both borrowing and guarantee liabilities.
Where customers hold joint loan accounts, both account holders have a joint and several liability to the bank. This means that the bank is entitled to recover the debt from both parties jointly and by each of them severally (individually).
In normal circumstances, an agreement between the parties for one of them to take responsibility for a joint and several debt does not change the right of the bank to require either or both parties to pay the debt. The bank has to consent to the re-allocation of liability before it will be bound by any such agreement.
However, under the new provisions of the Family Law Amendment Act 2003 (Cth) the consent of the bank may not be necessary as the court now has the power to make orders binding on third parties who are not a party to the relevant proceedings.
Guidelines
1) Unless the bank is otherwise ordered by the court, or is a party to a privately negotiated agreement, the bank is not automatically required to consent to arrangements such as:
2) Where parties propose to transfer property subject to the bank's mortgage or re-allocate the liability of a debt between the parties to a marriage, either by family law property settlement or court order, the parties should keep in mind the following points:
a) Each proposal for the bank's consent will be assessed on a case by case basis.
b) Do not enter into an agreement or seek a court order until you have discussed the proposed arrangement with the bank.
c) Allow sufficient time for the bank to make a full assessment of the proposal, which will involve a full financial assessment by the bank of the party who is to assume responsibility for payment of the mortgage debt. The bank will need to consider the parties' financial position, so as to satisfy itself of the ability of the transferee of the property, or the party who has assumed liability for the joint debt owed to the bank, to fulfil the financial commitment to the bank by himself or herself without undue financial hardship.
d) Full financial particulars including the terms of the proposed agreement must be provided to the bank.
e) Where the parties seek orders from the court directing one of the parties (A) to pay a lump sum or an amount by instalments in settlement of the other party's (B's) interests in property, and A needs to borrow the settlement amount, the bank will need to take that additional amount into account when assessing A's ability to service the existing loan. The bank must be satisfied that the existing debt together with the new debt can be serviced by A without causing undue financial hardship to A.
f) If there are continuing credit facilities such as an overdraft on a joint (or several) account that are secured by a mortgage, the bank may have to stop further drawings on the account until the matter is resolved or unless both parties expressly agree to further drawings.
g) The bank is not able to divulge personal or financial information about one of the parties (or their practitioners or representatives) without the consent of the party whose details is sought;
h) If there are other co-owners of property their consent will be required prior to any dealing with the property;
i) If other persons have guaranteed the parties' obligations to the bank, the consent of those guarantors might be needed before any alteration of liability or transfer of property occurs; and
j) There may be bank and other fees and costs payable to obtain the bank's consent to a dealing and in connection with the dealing itself.
5) When there is a proposal that one party is to be responsible to repay the bank for a jointly owed unsecured debt, an application to the bank for consent to recognise the change in liability must be made and points a) to j) above need to be observed. However, in the majority of cases the bank will be reluctant to release joint debtors from their joint obligation to the bank where the debt is an unsecured liability.
6) If the court grants one party the sole right to reside in a property to the exclusion of the other party the bank's rights against the non-resident party under the mortgage over the property is preserved unless the bank agrees to release that party from the mortgage.
7) If the bank declines either a transfer of property to a party or the release of a party from further liability it will be entitled to enforce its original contractual rights if necessary.
These guidelines are intended to be for general information and guidance. They are not intended to be legal or financial advice. They are not a substitute for legal or financial advice. If you are contemplating or are involved in family law proceedings or a family law agreement you should seek specialist legal and financial advice.
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