How does an executor exercise mortgage rights?

The role of an executor of an estate is to carry out the directions contained in a will and legally administer the estate after the will-maker has passed away. Sometimes that can be trickier than you might think.

To do the task properly (and avoid personal liability), an executor must keep these three things in mind:

1. the need to understand the legal, financial and taxation implications involved

2. maintaining independence if there are disputes concerning the administration of the estate

3. the personal and financial liability involved should the executor mismanage the estate.

One function of an executor is to sell estate assets prior to the distribution of the estate. This can give rise to complications.

In particular, what if the executor is required to collect a debt owed to the estate which is secured by a mortgage, and the borrower is refusing to repay the debt? An example of this may occur where the will-maker loaned money to a friend, colleague or business while holding a mortgage over their property and the borrower has defaulted in the mortgage repayments.

The law

To exercise a power of sale to recover a debt secured by a registered mortgage, a formal notice under the Real Property Act 1900 must be served on the borrower.

This gives rise to the question, can the executor (who has received a grant of probate) simply issue the notice in the name of the will-maker?

The answer is “no”, the mortgage firstly needs to be transferred into the name of the executor.

This is because under the Real Property Act 1900 only “a registered mortgagee” can exercise a power of sale of mortgaged land.

The grant of probate is not enough to make an executor a registered mortgagee. By giving a grant of probate the Supreme Court of New South of Wales recognises the authority of the executor to deal with the estate, but no more. This only enables the executor to administer the estate, such as recovering assets, paying outstanding debts or liabilities of the will-maker and attending to the distribution of the assets as directed by the will.

An executor does not “stand in the shoes” of the will-maker or represent the will-maker in the same way that an attorney appointed by a living person does.

This means that the executor does not have the right to issue the formal notice required as the executor is neither a “registered mortgagee” nor a proxy for the will-maker.

To issue the notice, the mortgage needs to be transferred into the name of the executor. We describe the process for doing that below.

Process for Transferring a Mortgage

The process to transfer a registered mortgage into the name of an executor is not straight forward. In brief:

• A “transmission application” (in the form published by NSW Land Registry Services) must be completed and signed. This form may be completed and signed by the executor or the solicitor for the executor.

• The transmission application is lodged with NSW Land Registry Services through the Property Exchange Australia (PEXA) portal together with a “lodgment rules exception form” and a certified copy of the grant of probate.

Note - only authorised PEXA subscribers can use PEXA. These subscribers include legal practitioners, licensed conveyancers and financial institutions. 

• The executor must sign a “client authorisation form” and complete a verification of identity. This form and identity report authorises the PEXA subscriber to sign off on the lodgment of documents in PEXA.

• The PEXA subscriber is then able to lodge the transmission application on PEXA. The timing of the registration will depend on when the NSW Land Registry Services completes their examination of the documents. This usually takes about 2 business days to be processed and registered on the title to the property.

Takeaway

The role of an executor is not to be taken lightly, and as outlined in this article, can be surprisingly complicated.

In all but the simplest estates (and perhaps even then) professional assistance from a lawyer should be sought.

If you have any questions in relation to collection of secured or other debts by an estate, property dealings or tax implications in the administration of an estate, please contact the authors or our Deceased Estates team.

Authors: David Creais and Sara Duong