How caveats work in Queensland
Queensland land is registered under the Land Title Act 1994. Titles Queensland manages the land titles registry for the state. A caveat is a notice on the title that someone claims an interest in the land, and under the Act it prevents registration of an instrument affecting the lot while it stands.
For a caveat loan, the lender relies on the loan agreement, which usually grants a charge over the property, and lodges a caveat to protect that interest. The lender is not a registered mortgagee, so it has less protection than under a registered mortgage. That is reflected in the price.
The Queensland lapsing rule
Queensland has a feature borrowers should understand. Under section 122 of the Land Title Act, a caveat lodged by an equitable mortgagee, which is how most caveat lenders hold their interest, must be a lapsing caveat under section 126. Titles Queensland's practice manual says the same: an equitable mortgagee's caveat lapses unless an action is commenced in court.
Section 126 sets the time limits. The caveat lapses unless the caveator starts court proceedings and notifies the Registrar within 14 days after the owner serves a notice requiring it, or within 3 months of lodgement if no notice is served. Loan agreements may also give the lender other rights, such as registering a mortgage if a payment is missed, so read them carefully and ask your lawyer how the rules apply to your documents.
Lodgement and withdrawal
The lender's lawyer will usually lodge the caveat, and on repayment should lodge a withdrawal. Titles Queensland publishes the registration fees for each. If repayment is from a sale or refinance, the withdrawal needs to be ready for settlement.
Typical scenarios in Queensland
Example only, not a real client. A Brisbane plumber's business has a large invoice outstanding and a tax payment due. A private lender agrees to a four-month caveat loan over the owner's home, which has a bank mortgage, with repayment from the invoice once paid.
Example only, not a real client. A Gold Coast investor has a property under contract to sell, with settlement in eight weeks, and needs funds now to secure another purchase. The caveat loan is repaid at the sale settlement.
Each example has a specific repayment source and date. If that source is uncertain, extension fees and default interest can quickly add up.
Costs to compare in Queensland
Get each offer in writing and compare:
- the interest rate and whether it is paid monthly, prepaid or added to the balance;
- establishment, legal and broker fees;
- Titles Queensland registration fees for the caveat and its withdrawal;
- default interest and fees for extending or repaying early.
Use the loan cost estimator to compare the total dollar cost of each offer.
Duty and land tax in Queensland
A caveat loan does not transfer land, so Queensland transfer duty does not generally apply to the loan itself. If you are using the money to buy property, transfer duty applies to the purchase and the Queensland Revenue Office collects it. See the Queensland stamp duty page. Land tax may apply to investment property you already own; check how it affects your cash flow while the loan runs.
Existing mortgages
Check the terms of any existing bank mortgage. Many prohibit further security or caveats without consent, and a breach can create a default with your bank.
Brisbane and regional Queensland
Lenders generally value property in Brisbane, the Gold Coast and the Sunshine Coast more readily than property in smaller regional and remote areas, where sales can take longer. Expect lower lending ratios or firmer exit evidence outside the south-east. See private lenders in Brisbane for more on lending in the capital.
Before you sign
Have your own lawyer read the loan agreement, the caveat documents and any mortgage authority. Ask what happens if repayment is late and when the lender can register a mortgage or take enforcement steps. Compare the offer with a second mortgage loan, which gives the lender registered security and may cost less.