Mortgage brokers who arrange private, bridging or second mortgage finance need a lawyer who can move at the pace of the deal. The lender wants security that will hold, the borrower or guarantor wants to understand what they are signing, and the broker wants settlement without last-minute surprises.
This article explains how Chua Tan Associates works with brokers on private lending in Victoria: what we do for lenders, what we do for borrowers and guarantors, and where the professional boundaries sit. Many of the parties we see come from Chinese-speaking communities or live overseas.
What we do for the lender
Diligence requests
Before funding, a lender needs a clear picture of the property and the people behind the loan. Depending on the transaction, diligence may cover:
- Title searches to confirm the registered proprietor and how the land is held;
- Existing encumbrances, including mortgages, caveats and covenants on title;
- The borrower or guarantor entity, including company searches to confirm directors, shareholders and status;
- Trust deeds where a trustee is borrowing or giving security, to see whether the trustee has the power to do so;
- PPSR searches, which can show existing security interests over a company’s personal property, such as another lender’s general security agreement.
Deal review
We review the proposed terms and structure from a legal perspective: whether consumer credit law could apply, whether the security matches the risk, whether each party has authority to sign, and whether anything in the searches needs resolving before settlement. Whether the loan is a good commercial decision remains the lender’s call.
Drafting the security documents
We prepare the loan agreement, the mortgage, any guarantee and indemnity, and where relevant a general security deed with registration on the Personal Property Securities Register. The documents need to work together, so that a guarantee covers what the loan agreement says is owed and the default provisions line up.
Registering the mortgage through PEXA
In Victoria, mortgages are generally lodged electronically, and we can act as the lender’s representative in PEXA. That involves the client authorisation and identity verification steps the electronic conveyancing rules require, and coordination with the other parties’ representatives.
Caveats
Sometimes a lender’s interest is protected by a caveat, as an interim measure or where a registered mortgage is not available. A caveat gives notice of a claimed interest and can restrict dealings, but does not of itself give a power of sale. Whether one is appropriate, and on what basis, needs care.
Second mortgages, consent and priority
In Victoria, the first mortgagee usually controls the electronic certificate of title, so its cooperation through PEXA is generally needed to register a second mortgage, and the first mortgage may treat a further mortgage as a default. A deed of priority may set how much the first mortgagee ranks ahead for and how the lenders deal with each other on enforcement. Our article on lender issues before funding a bridging or second mortgage discusses these risks further.
What we do for the borrower or guarantor
Private lenders commonly require borrowers and guarantors to obtain independent legal advice on the financing terms, and often a lawyer’s certificate. We explain the legal effect of the documents, the risks they carry and what may happen on default. Our separate article on independent legal advice before signing a private loan or guarantee explains this in more detail.
We cannot act for both sides
We do not act for the lender and the borrower, or the lender and a guarantor, in the same loan. The lender wants strong, enforceable security; the borrower or guarantor wants to understand and limit their exposure. A lawyer cannot properly advance both. Where we act for one party, the other parties need their own lawyers, and we can work efficiently with them.
The broker’s role and the lawyer’s role
Brokers arrange finance and know the market. Where the credit is regulated, they also have their own obligations, including a best interests duty. We advise our own client on legal effect and legal risk, and prepare or review documents. A broker should not be the person who explains to a guarantor what a guarantee means, and we will not advise a party we do not act for. Clear roles protect the broker as well as the clients.
Costs
Every client receives a costs disclosure, as the legal profession rules require. In private lending the loan documents often provide for the borrower to pay the lender’s legal costs. That is a commercial term between the parties, and the lender remains our client.
Chinese-speaking clients and overseas borrowers
Many parties are more comfortable in Mandarin or Cantonese, or live in mainland China, Hong Kong, Taiwan, Singapore or Malaysia. We can explain documents in Mandarin and Cantonese. Where a party signs overseas, identity verification and witnessing need planning, and the firm has a notary public. Where an overseas borrower is buying or holding Australian property, foreign investment rules may be relevant, and lenders may wish to understand whether approval has been obtained.
Questions to bring to us
- Who is the lender, and who are the borrower and any guarantors, including any company or trust?
- What is the security property, and is there existing finance on it?
- Is this a first or second mortgage, and has the first mortgagee been approached?
- What is the loan for, and could consumer credit law apply?
- What is the settlement date, and what is the borrower’s exit strategy?
- Will anyone sign overseas or need advice in Mandarin or Cantonese?
- Who needs independent legal advice, and have they been told?
How we work with mortgage brokers
We see brokers as professional partners, each with a distinct role. A broker can introduce a lender, a borrower or a guarantor, and we then act for that client alone. Private and bridging loans often run to tight timetables, so it helps when the broker gives us the full picture early: the parties, the security property, existing finance, the proposed terms and the settlement date. With the client’s consent, we keep the broker updated, including on anything holding up settlement, such as an outstanding search, a missing trust deed or a first mortgagee’s cooperation. When another party needs separate advice, we say so promptly so it does not delay settlement.
Frequently asked questions
Can the same lawyer act for the lender and the borrower in a private loan?
We do not do so. The lender and borrower have different interests in the same loan, and each should have their own lawyer. Guarantors also need advice separate from the borrower.
Does a second mortgage in Victoria need the first mortgagee’s consent?
In practice, the first mortgagee’s cooperation is usually needed to register a second mortgage electronically in Victoria, and the first mortgage may restrict further borrowing. A deed of priority is often negotiated. The position depends on the documents.
Every family’s situation is different, and the answer often turns on details. Book a consultation so we can review your documents and circumstances before you act.
How Chua Tan Associates can help
Chua Tan Associates has practised in Melbourne since 1990 and acts for private lenders on diligence, deal review, loan and security documents and electronic registration, and for borrowers and guarantors who need independent advice on financing terms. Justin Chua trained in accounting (Bachelor of Commerce, accounting major), is an affiliate member of STEP (the Society of Trust and Estate Practitioners), and is a Nationally Accredited Mediator and an Accredited Family Business Advisor. We assist clients across Australia and overseas, work with the client’s accountant and with lawyers in Asia, have a notary public for documents signed abroad, and advise in English, Mandarin and Cantonese.
Important: This article is general information only and must not be relied on. It is not legal, tax or financial advice, does not take your circumstances into account, and may not reflect changes in the law after publication. Laws of other countries may also apply. Do not act or refrain from acting on the basis of this article. Reading it or contacting us does not create a lawyer–client relationship. Please book a consultation for advice on your situation.
Related reading
Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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