B & B Holdings Pty Ltd (“Borrower”) carried on business as a real estate developer. The Borrower obtained finance from three lenders, all of whom took mortgages over the same real properties owned by the Borrower. A first ranking mortgage was granted to Kingsway Group Pty Ltd (“Kingsway”), a second ranking mortgage to Reckley Pty Ltd (“Reckley”) and a third ranking mortgage to John Skehan (“Skehan”).
Each of the three loans was guaranteed by Mr and Mrs Bofinger (the “Bofingers”), both were directors of the Borrower. Each guarantee was in turn secured by first, second and third mortgages over the family home and an investment unit owned by the Bofingers. The court made no reference to any priority or inter-creditor agreement between the mortgagees.
Following default by the Borrower, the Bofingers voluntarily sold their properties, applying the net proceeds of sale (in the vicinity $1.5 million) to Kingsway to reduce the first loan. All three mortgages over the Bofingers’ properties were discharged upon settlement.
Thereafter, Kingsway exercised its power of sale over some of the properties mortgaged by the Borrower in order to satisfy the amount outstanding under the first loan.
Having satisfied the balance of its debt, Kingsway paid the surplus sale proceeds to Reckley as second mortgagee. Kingsway also delivered to Reckley the certificates of title to the two unsold properties of the Borrower together with a discharge of Kingsway’s mortgage for each of the unsold properties.