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What Does Discharge Of Mortgage Mean?

Mortgage Law

Once the principal or secured sum has been repaid, a discharge of mortgage can be obtained from the mortgagee. The procedure involved is set out in s 84 of the Transfer of Land Act 1958. The approved form must be used and lodged along with the certificate of title for registration. Once the discharge has been registered, the property ceases to be subject to the mortgage. A discharge of mortgage operates to release the land from the mortgage security.

No stamp duty is payable on a discharge of mortgage.

A mortgage can be registered over one or more folios of the register. There are situations where the mortgage is registered over a number of parcels of land, often but not always, in a number of different titles. A mortgagor may seek to discharge the mortgage only insofar as it relates to one of these parcels. This is known as a partial discharge of mortgage.

A mortgage may be partially discharged by using the approved form and lodging it along with the certificate of title for registration: s 84 of the Transfer of Land Act 1958.

If the whole of the land in a folio of the register is being discharged it is only necessary to insert the relevant volume and folio number in the land description panel. However, if only part of the land in a folio of the register is being discharged it is necessary to competently describe the land to be discharged. Usually, but not always, this is done by lot and plan number.

Section 8A of the Sale of Land Act 1962 prohibits the sale of land that is part of a title unless it is a specific lot on a certified or registered plan of subdivision. A mortgagee, therefore, will not give a partial discharge of mortgage that would effectively leave the mortgagee with an unsaleable security such as part of a lot and/or part of the land in a certificate of title. The reason for this is that if a mortgagor were to default, the mortgagee would not be in a position to exercise its power of sale (s 77 of the Transfer of Land Act 1958) as it would have a parcel of land which was unable to be transferred.

Often during the subdivisional process the whole of the land to be subdivided is mortgaged to finance the development. A plan of subdivision is drawn up, certified by council and registered at Land Use Victoria. The mortgagee must consent to the registration of the plan of subdivision and the new titles for the various lots will issue showing the mortgage as an encumbrance.

It is possible to sell a lot on an unregistered and/or uncertified plan of subdivision provided the relevant provisions of the Sale of Land Act 1962 are complied with. This practice is known as ‘pre-selling’ and the type of contract used for ‘pre-selling’ is known as a ‘prescribed contract of sale’ as defined in s 9AA(7) of the Sale of Land Act 1962. Where a plan of subdivision has not yet been registered, the land can still be identified and sold by using the lot and plan number. This gives the land a unique identifier. The purchaser will also have mortgage documents drawn up using this unique identifier to describe the proposed security property.

Once the plan of subdivision has been registered details of the new volume and folio are communicated to the purchaser and ultimately the incoming mortgagee. Sometimes, but not always, these new details are inserted and/or added into the transfer and any incoming mortgage.

At settlement of an off the plan sale, it is not unusual to give a partial discharge of the mortgage insofar as it relates to a particular lot on the registered plan of subdivision. This is handed over at settlement together with the certificate of title. If the certificate of title has not yet issued, the partial discharge of mortgage will be endorsed with an order to register for lodging by the incoming mortgagee. The partial discharge will then be registered with the transfer and incoming mortgage as follower dealings. It is not unusual for all these documents to describe the land only by its lot and plan number.

The first step to discharge your mortgage would be to fill a discharge form. The process can be complicated and our lawyers would help make the procedure easier for you. If you need any help, you can contact us by clicking on the button below.