1. DO I REALLY NEED A POWER OF ATTORNEY OR ENDURING GUARDIAN?

Have you thought about a time when you may be unable to make decisions or undertake duties for yourself? In order to safeguard against the possibility that you may be unable to manage your financial or heath affairs in the future, you should consider signing any one or all of the following documents:

• Enduring Power of Attorney;
• Enduring Guardian; and
• Advance Health Care Directive (or Living Will).

The purpose and effect of each of the above documents is different. The differences are discussed below.

While you may have a Will, a Will is only effective after your death. Therefore, it is important that you protect yourself in the event you cannot manage your own affairs. If you, or if you have a loved one who, would benefit from any of the above types of documents, please do not hesitate to contact us.

2. Distribution of Surplus Proceeds by Mortgagees and Possible Rights of Sureties to be Subrogated Under Earlier Mortgages

In Ronald John Bofinger and ors v Kingsway Group Limited formerly Willis & Bowring Mortgage Investments Limited and ors [2009] HCA 44, the High Court of Australia recently considered the right of a guarantor to recover money from surplus funds realised by a first mortgagee where there are multiple mortgagees registered on title. More specifically, this case related to a mortgagee sale where the guarantor under the first mortgage had provided money to contribute to the payment of the first mortgagee’s debt. The question was whether the Guarantor should be entitled to any rights of subrogation that arise at law or in equity and thereby be entitled to surplus funds ahead of subsequent mortgagees.

In this case, three separate lenders advanced money to B & B Holdings Pty Ltd (the Borrower), with each lender holding a registered mortgage over all of the property of the Borrower. This meant that each property had three mortgages registered against title. All loans advanced by the three separate institutions were guaranteed by the Bofingers (the Guarantors).

The Borrower defaulted under the terms of the first registered mortgage and the first mortgagee exercised its power of sale. In order to reduce the value of the debt, the Guarantors made a bulk payment of $1.5 million to the first mortgagee which was financed from the sale of their personal properties. The first mortgagee realised a surplus following settlement of approximately $700,000. The surplus was paid to the second registered mortgagee, and the certificates of title relating to the remaining properties not required to be sold by the first mortgagee to recover its debt, were handed to the second mortgagee.

The Guarantors claimed that by making a payment to the first mortgagee as guarantors to reduce the value of the debt, they then had the right to the benefit of the surplus funds in priority to the second and third mortgagees, notwithstanding that they were also the guarantors under each of these mortgages also.

In claiming this alleged right, the Guarantors relied on the principle of subrogation in equity. They also relied on section 2 of the Law Reform (Miscellaneous Provisions) Act 1965, which contains a statutory right in favour of a guarantor who has discharged the debtors obligation to the benefit of the mortgagee.

Further, the Guarantors claimed that the surplus funds and remaining title deeds not required by the first mortgagee, constituted property held on trust for their benefit by the first mortgagee. They sued the first mortgagee for a breach of this trust and the second mortgagee to recover what they alleged was the trust property.

Although both the Supreme Court of NSW and the NSW Court of Appeal found against the Guarantors, an appeal was made to the High Court of Australia.

After consideration of the issue, the High Court unanimously held that the Guarantors were entitled to the right of subrogation. Accordingly, the Guarantors were in fact entitled to the surplus funds in priority to the subsequent mortgagees, even though they were also guarantors under each of these secured loans. This decision was based on the view that there was a fiduciary obligation on the first mortgagee in good conscience to provide the surplus funds to the guarantors, such fiduciary obligation having been breached.

Implications for Mortgagees

As a result of this case, when exercising its power of sale, a mortgagee should have regard to any possible rights of subrogation to any surety if that surety has made a payment towards the reduction of the secured debt and the implications that arise where there are subsequent mortgagees. Mortgagees should also consider whether the terms of any guarantee or security documents can be relied upon to limit any such rights of subrogation as these rights to subrogation can be surrendered by contract. In addition, when distributing the surplus funds following the sale of the property, the mortgagee should refrain from giving this money to the borrower until they have taken into consideration the above.

It is also suggested that documentation such as a Deed of Priority includes terms whereby any rights of subrogation, if they exist, are waived and that all sureties be a party to the documents.

3. Objecting to Land Value Assessments

If you have ever owned property in New South Wales, then you would have received a Notice of Valuation from the Valuer General. This Notice contains information relating to the value of your land.

In New South Wales, you may be liable to pay Land Tax in respect of any property that you own that is not your principal place of residence or which is used for primary production if certain conditions are met.

The amount of Land Tax that you pay (if applicable), and Council Rates are determined each year by the Valuer General and is based on the unimproved value of your land. This means that any building or other structures on the land are not taken into account. The amount of the unimproved value of the land should not be confused with the full price that you might realize if you were to sell your property.

When determining the unimproved value of your land, regard is had to current market conditions as at 1 July in the valuing year. This takes into account recent market sales of both vacant land and improved properties, location, size and shape of the land, zoning, views, heritage restrictions and surrounding infrastructure.

The following are not taken into account when assessing the unimproved value of the land:

• Any house built on the property;
• The presence of a shed or detached garage;
• Any easements registered against title (although a pipe laid in relation to an easement will be taken into account);
• The sales of similar properties between related parties.

Whether or not you are liable for Land Tax, you will receive a Notice of Valuation from the Valuer General at least every 4 years. This does not mean that you are automatically liable to pay Land Tax. If you are liable to pay Land Tax, you will receive a Notice of Assessment from the Office of State Revenue.

It is the Notice of Valuation, however, that will contain the Valuer General’s determination as to the unimproved value of the land as at 1 July in the valuing year. If you do not agree with the value that has been determined by the Valuer General, you may wish to lodge an Objection. An objection must be lodged using a Valuation Objection Form with the Valuer General within 60 days of the date of the Notice of Valuation.

The grounds for a valid objection are set by the Valuation of Land Act 1916 and they include:

• that the values are too high or too low;
• that the area, dimensions or description of the property stated on the Notice of Assessment are not correct;
• that interests held by multiple owners have not been correctly apportioned;
• that any other relevant apportionment of the valuations is not correct;
• that lands that should have been included in one valuation have been valued separately;
• that lands which should be valued separately have been included in one valuation; and
• that the person named in the Notice of Valuation is not the Lessee or Owner of the land.

The most common ground used for an objection is that the unimproved value of the land is too high or too low.

If you wish to lodge an objection to the unimproved value of your land, you are required to lodge evidence in support of your claim. This will include evidence such as sales prices of comparable properties. A lack of consideration for factors such as location, size and shape of the land, zoning, views, heritage restrictions, permissible use of the land and surrounding infrastructure will also be considered evidence when accompanied by a comparable sales report.

Factors which will not be included are:

• comparing land values with land values of non-comparable properties;
• comparing land values with asking prices for comparable properties listed for sale;
• comparing land values with land values contained in a prior Notice of Valuation; or
• your personal circumstances such as income.

Once your objection has been determined, if you remain unsatisfied with the outcome, the unimproved value of the land can be objected in the Land and Environment Court.

Similarly, you can object to a land tax assessment through the Chief Commissioner of State Revenue, within 60 days of the issue of your assessment notice. Objections can be made to the Administrative Decisions Tribunal or the Supreme Court of New South Wales.