By Russell Cocks, Solicitor
First published in the Law Institute Journal
A sheriff’s sale is one of the true curiosities of the world of property law – to borrow a phrase, ‘a riddle wrapped up in an enigma’. The urban myth conjures up visions of the dastardly sheriff riding in on his pitch-black steed to wreak havoc on the ‘innocent’ villager. As a recent case confirms, there is not likely to be a Robin Hood in the wings waiting to swoop in at the last minute to set things right; indeed, quite the contrary.
Kousal v Suncorp-Metway Limited [2011] VSC 312 cast the defendant bank in the role of an innocent bystander seeking the direction of the court. The plaintiff was the purchaser from the sheriff and sought to require the defendant to make the certificate of title to the property available to allow for registration of the transfer from the sheriff. Herein lies the reason why the matter had proceeded to this point: the owner of the property and person most likely to suffer the harsh consequences of the sheriff’s sale was not a party to the proceedings and had steadfastly failed to take appropriate steps to protect his interests. As a consequence the law, like a steamroller, had followed its unrelenting course to ‘justice’ and the case became another episode in the tales of sheriff’s sales.
The story began as a simple debt claim in the Magistrates’ Court. A creditor claimed payment from the debtor (the ‘innocent villager’ in our tale). Irrespective of the merits of the claim, it appears that the debtor did not contest the claim and judgment was entered. This failure to engage in the legal process, repeated time and again, by the judgment debtor is the true cause of the problems that arose as, whilst many such judgments go unenforced, this judgment debtor was the registered proprietor of real estate and thus susceptible to the sheriff’s sale procedure.
The judgment of the Magistrates’ Court was raised to the Supreme Court and a writ of seizure and sale was issued. These were previously known by the far more exotic – and perhaps appropriately theatrical – name of fieri-facias, commonly abbreviated to fi. fa. This writ calls upon the sheriff to sell the judgment debtor’s assets and account to the creditor for the proceeds of sale to the extent of the judgment and costs, and to the judgment debtor for any balance. The likelihood of a mortgage to a third party, the role played by the defendant bank in this case, serves to add a further complicating factor. The sheriff only has power to sell the interest of the judgment debtor in the property, and therefore any sale is subject to all encumbrances affecting the property at the time of sale. Thus the mortgagee bank was not liable to lose the protection of its mortgage; it was simply being asked in these proceedings to make the title available to allow for the registration of the transfer of the interest of the judgment debtor by the sheriff to the plaintiff.
The plaintiff had entered the fray as an existentialist Robin Hood. Rather than fight off the sheriff and return the villager’s home, the plaintiff became the purchaser at the sheriff’s sale, first bidding $100 and finally $1000 for the right to take a transfer from the sheriff. Given that the property was apparently valued in excess of $600,000 and the mortgage was around $400,000, the prospect of a $200,000 profit appeared to be good shopping.
At this point the sheriff’s sale process appears to have gone feral. A person can lose their home, in which they have an equity of $200,000, and the judgment creditor, who initiated the process, stands to receive nothing, as the sale price of $1000 would not even cover the sheriff’s costs. Whether the villager is an idiot or not, that cannot be justice. Mukhtar AsJ. also expressed concern in relation to this outcome and repeated a call first made in 1982 for a review of this procedure, which appears to be ‘ill adapted to modern conditions’.
Without doubt, the judgment debtor/registered proprietor should have done more to help himself. He sought the assistance of a private lawyer, but regarded that as too expensive. He followed the usual trail around the various free legal services, but appeared to weary of the travel. No doubt a lack of English greatly affected his understanding of the significance of the documents that he received, but by the end he would have needed a wheelbarrow to transport them and yet he still came before the court and shrugged his shoulders, unable to see the steamroller diligently rolling towards him. Mukhtar AsJ. made orders that ensured that the process could not proceed without coming to the attention of the person most affected by the orders, even though not a party to these particular proceedings, but in the end concluded that ‘[t]he Court can do no more’ (para 41).
Mukhtar AsJ. identified a number of areas of concern in relation to the sheriff’s sale process:
- that the prospect of a sale being made without any reserve price can lead to a perception that the property is being sold under value and call into question the duty of the sheriff to the judgment debtor to sell for the ‘best price’ (para 35);
- that the application for a sale without reserve, which can be made after an unsuccessful sale with a reserve, should not be made ex parte, but rather with notice to the judgment creditor;
- that consideration should be given to holding sheriff’s sales on-site, rather than at the sheriff’s office, with additional advertising. The implication is that a sheriff’s sale ought more resemble a traditional auction; and
- that, in appropriate circumstances, a court may need to set a ‘not below’ price, something of a misnomer in a ‘no reserve’ auction.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.