Ever wondered what a caveat is?

Source: thanks to Avanti Finance.


Introduction
In some instances Avanti Finance registers a caveat against a property when a loan
advance is made and in others we register a mortgage. This is typically loan balance
driven i.e. we require a caveat for loans under $50,000 and a mortgage for loans
over this amount. While we think of caveats and mortgages as being inter-related,
legally, they have different purposes and effects.


Caveats
In Latin, ‘caveat’ means ‘let the person beware’. With certain exceptions, the normal
purpose of a caveat is to warn all persons that someone (the caveator, Avanti in
this instance) claims an interest in the land. In most cases, it is simply a warning
which creates no new rights but protects any existing rights. The effect of a caveat is
that the owner can’t deal with the property (including selling it), without the caveator's
consent.
No one can lodge a caveat without a ‘caveatable interest’. The most common types of
caveatable interest are:
 A mortgagee’s interest under an agreement to mortgage;
 A mortgagee’s interest under an unregistered mortgage;
 A purchaser’s interest under an agreement for sale & purchase; or
 A lessee’s interest under an unregistered lease or an agreement to lease.
Avanti’s caveats fall into the first category above as our loan agreements contain an
agreement to mortgage.


Mortgages
A mortgage is a charge over land to secure the future payment of money. It does not
prevent the registration of most other charges. The same property can be mortgaged
several times and the successive mortgages are called first, second, third mortgages.
Mortgages normally take priority in the order in which they were registered (although
there is provision for the priority to be varied).


The Registration Process
The purpose of the Land Transfer Act 1952 (‘LTA’) is to lay down a comprehensive
system of records and procedures so that conveyancing practitioners can fully advise
their clients about the land they own or want to purchase. This includes the exact
location & extent of the land in question, who is the owner and what the encumbrances
or limitations on the land title are. This information must be accurate and readily
available. The LTA provides for a Registrar-General of Land (‘RGL’). The role of the
RGL is to:-
 Ensure an efficient and effective system for registering dealings in land;
 Manage the risk of fraud and improper dealings;
 Ensure public confidence in the land titles system; and
 Ensure the maintenance of the integrity of the register and the right to
claim compensation. Caveats, Mortgages & Registration


In 1996 the Department of Land & Survey Information merged with the Land and Deeds
Division of the Justice Department and a completely new department called Land
Information New Zealand (LINZ) was formed. Landonline was then set up as a
computerised land registration system whereby all LINZ records were captured in digital
format. Landonline provides access to its services under three main areas: e-search, esurvey and e-dealing. While paper documents can be lodged in some circumstances,
LINZ is moving to have all transactions lodged electronically.


Upgrading a Caveat to a Mortgage
If a mortgagor is in arrears one of our options is to sell the property as mortgagee to
recover the full loan. This is not entered into lightly and would only be considered if we
have exhausted all options to work with the client to resolve the situation.
Part of the process is to issue a Property Law Act notice to the mortgagors. The
Notice outlines the default and gives the mortgagor a certain number of days to remedy
the default. If the default is not remedied Avanti can mortgagee sell the property. If
we have a caveat registered against the property rather than a mortgage, Avanti can
withdraw the caveat and register a mortgage in its place to be able to sell the
property as mortgagee as attorney pursuant to the power of attorney clause in the loan
agreement.