Property sale proceeds to repay other loan

Freeing up capital,
Jack and his partner had two home loans – one in their own names secured by their home, and the other in their company’s name secured by an investment and a rental property. They sold the investment property and expected to keep the proceeds of the sale after repaying the loan in the company’s name. Just before settlement, however, the bank told them it intended using those proceeds to help repay the other loan, explaining that it held an interlocking guarantee over both properties, meaning each was a security over the loan on the other. They complained that the bank was being unreasonable and also that it had given them no warning of its decision. Unable to resolve the matter, Jack and his partner came to us.
October 2021

Our investigation

We found there was, indeed, an interlocking guarantee in place. We also found the bank only became aware that Jack and his partner wanted to keep all the proceeds after receiving a request to discharge the mortgage and so had no opportunity to provide advance notice of its decision. As soon as the bank became aware of their intentions, it arranged an urgent meeting with them to assess whether it could allow them to keep proceeds. However, the bank’s decision did not change, and its assessment noted that this was in part due to the sale of the rental property, which reduced their income and ability to service the other loan. The bank then exercised its commercial judgment in deciding it needed to put the proceeds towards reducing the size of the other loan.


We did not uphold the complaint.            

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