Contract & Property Law

Money is your responsibility

Buying a house is an expensive undertaking. For most people, it means borrowing a huge amount of money and
committing to repaying an equally huge amount of interest every year. If things work out and the loan is repaid and the house finally mortgage free, everyone is happy. If things dont work out, however, its often tragic. The GFC has provided us with countless examples of families losing their homes and pretty much everything else they had acquired in terms of statuts, income, security in the process. It is not surprising then that people turn towards the institution which got them into the situation in the first place, i.e. their banks. After all, THEY gave them the money, THEY talked them into it.

But is that really true?

For the bank, a mortgage is nothing else than a business transaction. Money against interest payments. For the lender, especially when a family is involved, it is emotional. The money means a home, security, equity. It also means freedom from paying rent and living on someone elses property. When emotions are involved, rational thoughts go out of  the window very quickly. And lets face it, the amounts involved in buying a property these days are so ludicrous, that it is difficult to put them into context. People go to Pakn’Save because the milk is $2 cheaper than at New World. But when it comes to buying a house, the same people are prepared to increase their offer by $50,000 or $100,000 (the equivalent of a years gross salary!) without any second thought. At that level, money becomes just a number. Weird, but true.

So, again, if you have over committed yourself, made a mistake and are now about to lose your home because you cant pay the mortgage anymore, is your bank to blame?

The Supreme Court of NSW didn’t think so. The Court held that first of all any duties between customers and bank are
founded in contract, not tort. Which seems obvious, but is an important distinction as it means that any foreseeability argument – as in ‘with your experience you should have known it wouldnt work’ – doesnt apply anymore. More importantly, the Court made it clear that the bank’s undertook to help the customers realising their decision. That decision was to purchase a property. It was not the bank’s job to question that decision.

It is important to note though that the case involved reasonably experienced customers. It was also not about a complicated or confusing credit agreement, which would have required the bank to be more pro-active in explaining the risks to their customers. It was ‘just’ a mortgage and the normal due dilligence process applied and was carried out.  The important lesson therefore is that money is your responsibility. Dont look to your bank for advice whether you can afford the loan and repayments. Do your homework, run the figures, be clear what you let yourself in for. So that when you trip, you know it was your fault. And not the fault of the person who put the stone there.