LAW 301 Land Law
March 2022
Learning Block A: Title, Interests & Priorities
Activity & Tutorial
Problem
In 2017, Jonathan purchased an apartment in central Auckland. The purchase price was $900,000, of
which he contributed $500,000. He borrowed the balance of $400,000 from his friend, Krish, at 4%
annual interest and signed a mortgage agreement as security. The mortgage was not however
registered, nor did Krish get his lawyer to lodge a caveat at that time. Krish just wanted to help his
friend, and was happy to ignore the interest, as long as the principal would be paid off in quarterly
instalments over the next 5 years.
In mid-2018, Jonathan decided to renovate the apartment’s outdated bathroom and kitchen, but, as he
did not have a good credit rating, he was unable to borrow from a bank. Instead, he borrowed
$200,000 from Second Chance Finance at 8% annual interest payable fortnightly for a term of 5 years.
The principal was repayable at the end of the term. Jonathan signed a mortgage agreement, but the
mortgage was not registered on title. Because of a solicitor’s error, Second Chance Finance did not
search the title to the apartment. It did lodge a caveat to protect its interest immediately after having
entered into the mortgage agreement with Jonathan.
In 2020, Jonathan’s business went into receivership. He has not been able to pay the interest on
Second Chance Finance’s mortgage since March 2020. Jonathan has also not paid any instalments to
Krish since early 2020. Krish became concerned and lodged a caveat to protect his interest in mid2020. Krish and Jonathan have argued about the debt. Krish says that Jonathan will have to pay
interest on the unpaid amount from March 2020 until the debt is repaid. Second Chance Finance
became aware of the loan from Krish in late 2020 but did not immediately take steps to initiate a
mortgagee sale as there was then sufficient value in the property to cover both debts.
It is early 2022. With penalty interest and legal fees, the debt to Second Chance Finance has now
compounded to $300,000. Jonathan also still owes Krish $300,000 plus some $50,000 of back
interest. Furthermore, it has recently been discovered that the apartment building suffers major
structural problems, and the property is now valued at only $500,000.
Second Chance Finance wishes to commence the mortgagee sale process.
Who has priority to the property? Refer to relevant cases and statutory provisions in your answer.