Updated ADLS Securities Documents

The ADLS Documents and Precedents Committee are pleased to announce that the following six security documents have been updated:

Documents not registered at LINZ
  • 8006 - Mortgage Instrument – All Obligations;
  • 8003 – Mortgage Agreement – Fixed Sum – CCCFA;
  • 8004 - Mortgage Agreement – Fixed Sum – Non regulated;
  • 8009 – Term Loan Agreement – Non regulated.
Documents that may be registered at LINZ
  • 6304 – Mortgage – All Obligations;
  • 6305 – Mortgage – All Obligations Including Blank Annexure;
The Committee have decided to make the following four security documents obsolete and their continued use is not recommended:
  • 8001 - Mortgage Instrument – fixed sum – CCCFA;
  • 8002 - Mortgage instrument – fixed sum – non regulated;
  • 6306 - Mortgage – All Obligations including Covenantor;
  • 8007 - Client A & I - All Obligations Mortgage.
 
Main changes
Disclosure: The main changes to the documents are the incorporation of the disclosure requirements in the agreement or instrument rather than in the memorandum. Initial disclosure under the Credit Contracts and Consumer Finance Act 2003 is now required to be given before the contract is made. We had been advised by the Commerce Commission that some borrowers had claimed that when they entered into a mortgage incorporating the ADLS registered memorandum terms they were not given a copy of the memorandum and therefore disclosure had not been given. 

By removing the disclosure text from the memorandum and including in the mortgage agreements this issue has been partly overcome. While disclosure still requires disclosure of all of the terms and conditions other than those implied by law which includes disclosure of the memorandum, the credit terms disclosure are now more logically included with the credit terms.

Removal of covenantors: Many of the old precedents included provision for a Covenantor. The Covenantor provisions were not often used and the distinction between a covenantor and a guarantor is blurred. In all cases where a Covenantor was used, that party is now referred to as a Guarantor. If you wish to limit the liability of the guarantor to the performance of certain covenants only or covenant only up to a stated amount than that can be provided for as an additional clause.

Documents registered at LINZ: The two documents 6304 and 6305 are the paper versions of the mortgage instrument. These are used very rarely as solicitors are required to register mortgage electronically. However, the forms may be prepared by lawyers for clients who undertake their own registration in the paper environment and therefore may still be useful.

Importance of choosing the correct form: The most common way to document a loan secured by a mortgage is to separate the loan and the security terms. The loan is documented by the term, loan agreement or the mortgage agreement. The mortgage agreement most commonly used is the fixed sum form (8003 or 8004).

While many lawyers will use a mortgage agreement with an all obligations mortgage memorandum as a matter of administrative convenience for further advances and variations to the loan, this may not be the most appropriate form. If the loan is truly a fixed sum loan for a fixed term then you should discuss with your client whether they prefer a fixed sum mortgage or an all obligations mortgage.

The essential difference is that the fixed sum mortgage results in the amount secured by the mortgage being noted on the register. This can also be achieved by including specific wording in the priority sum text.

The Australian High Court in the case of Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd[2013] HCA 10 confirmed the judgement of a lower Court that found that a firm of solicitors was negligent because they were asked to document and register a specific mortgage for a fixed sum and failed to turn their mind to the appropriate form of mortgage. The mortgage was fraudulent in that one of the property owners had forged the signature of the other and as a result of the law that confirmed that the mortgage acquired indefeasibility but secured nothing because of the lack of a statement as to the amount secured (confirmed by our Supreme Court in Westpac v Clark [2010] 1 NZLR 82). The legal firm used an all obligations mortgage without first discussing the issue with their client. The lower Court found that the particular legal issue, having been identified in numerous cases was or should have been sufficiently well known that it was negligent for the lawyer not to address this issue when preparing a mortgage for a fixed sum.
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