Mortgages and Caveats on Title: What Victorian Property Buyers Need to Know
A mortgage or caveat on the title of a property you're buying doesn't necessarily mean the deal is off — but it does mean there are steps that must happen before settlement.
When you look at the encumbrances section of a Section 32, you may see references to mortgages and caveats registered on the property's title. These aren't uncommon, and they don't necessarily mean the deal is off. But they do require specific action before settlement.
Mortgages on title
A mortgage on the title means the vendor has borrowed money against the property — most commonly a home loan with a bank. The mortgage gives the lender a registered interest in the property as security for the debt.
This is extremely common. The vast majority of properties sold in Victoria have a mortgage on title. It does not affect your ability to buy — but the mortgage must be fully discharged (paid out) at or before settlement. Your purchase funds typically pay out the mortgage, with any remaining balance going to the vendor.
Your conveyancer will manage this process and ensure that the title transferred to you is clear of any mortgage. Before settlement, they'll confirm the discharge with the vendor's lender.
What if there are multiple mortgages?
Some properties have more than one mortgage — for example, a first mortgage to a bank and a second mortgage to a private lender. Both must be discharged before you receive clear title. Your conveyancer should identify all registered mortgages from the title search and ensure all are addressed in the settlement process.
Caveats on title
A caveat is a formal notice lodged on the title by someone who claims an interest in the property. Unlike a mortgage, it doesn't necessarily represent a debt — it can be lodged by anyone who believes they have a legal or equitable interest. Common reasons for caveats include:
- An unpaid builder or contractor lodging a caveat based on a caveatable interest under their contract or the Building and Construction Industry Security of Payment Act
- A family member claiming an interest following a relationship breakdown
- A buyer under a prior contract who is claiming their interest is protected
- A beneficiary of an estate or trust claiming an interest
- A vendor's lender in certain commercial lending arrangements
Is a caveat a problem?
It can be. A caveat prevents dealings on the title — including the transfer of ownership to you — until it is removed. This means the caveat must be withdrawn or lapse before settlement can occur.
How it resolves depends on the nature of the claim. The vendor's solicitor will need to deal with the caveator (the person who lodged the caveat) and have it withdrawn. In some cases this is straightforward; in others it can delay settlement or indicate a genuine dispute that needs investigation.
What you should do
If the Section 32 or title search reveals a caveat, raise it with your conveyancer immediately. Ask them to find out:
- Who lodged the caveat and on what grounds?
- Has the vendor agreed to have it removed before settlement?
- Is there a genuine dispute that could delay or prevent settlement?
- Is it a lapsing caveat that will expire automatically?
Never settle on a property with an unresolved caveat without your conveyancer's explicit advice. Doing so could mean you don't receive clear title.
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