A problem often faced by creditors is how to recover unsecured judgment debts. If a debtor owns real property, there is a mechanism available through the Courts to have the debt registered against the property and the sheriff's office sell the property to satisfy the judgment debt.
The terminology and procedure varies between the Australian States, but in essence, once judgment has been obtained, a creditor may file for a Warrant of Seizure and Sale to be issued to instruct the sheriff's office to levy over and sell any real property owned by the debtor to repay the debt.
What does a Warrant of Seizure and Sale do?
A Warrant directs the sheriff to realise property of the debtor by taking possession and selling it at public auction. In the case of real property, the sheriff may only sell the debtor's equity in the property. Upon the sheriff selling the debtor's real property, a transfer is executed transferring ownership of the property to the purchaser.
If there are secured creditors registered on title, their security remains on title in full force and effect. The purchaser accepts the property subject to all encumbrances remaining on title.
As the warrant is registered on title if the debtor chooses to sell the property before the sheriff executes the warrant, the debtor will need to negotiate with the creditor to remove the warrant from the title to enable settlement to proceed. In this circumstance the warrant operates in a similar manner to a caveat.
How is a Warrant of Seizure and Sale obtained?
Each State has its own procedures, but in summary a warrant to be executed over real property is obtained from the relevant Court.
The process in Victoria, Tasmania and Western Australia is relatively straightforward. Once judgment is obtained, a creditor may apply for a warrant to be issued by the relevant Court if the debt remains unpaid. The warrant is then registered on the title to the property and forwarded to the sheriff for execution. If a resolution is not achieved, the sheriff will auction the equity in the property. In both Victoria and Western Australia, the sheriff will only sell a debtor's real property if they are satisfied that the sale of the debtor's other property will be insufficient to discharge the judgment debt.
In NSW, there are additional documents that must be prepared and served, which can delay the process. The debtor may also, at any time, apply for an instalment order, which places all enforcement proceedings on hold. A creditor may challenge the instalment order, which if successful nullifies the order. Alternatively, if the debtor defaults on an instalment payment, this also nullifies the instalment order.
In South Australia a creditor must explain to the Court why the debt should be paid from the debtor's property.
The procedure in Queensland differs again. After a warrant is obtained, it must be registered against the debtor's land, and provided to the appropriate government body. Only after registration is achieved, can a creditor force the sale of the land by public auction. Typically, enforcement of a warrant in Queensland is a lengthier process than in other States.
Difficulties with Warrants of Seizures and Sale
In Victoria there is a requirement for a warrant to be re-registered every 3 months with the land titles office if it is to remain in effect against real property. If the warrant is not re-registered within 3 months of issue, the sheriff will not execute it.
As the sheriff only sells the debtor's equity in property, if there are registered securities on title or the debtor jointly owns the property, potential purchasers may be put off buying the property as they will not receive clear title to the property.
An unsecured judgment debt may be enforced against real property pursuant to a Warrant of Seizure and Sale. In most States the warrant is registered on the title to the property. This event in itself may encourage debtors to negotiate a resolution of the debt in order to have the warrant removed from the title to the property.
By conducting appropriate property searches prior to proceeding, creditors can decide whether obtaining a warrant is a worthwhile exercise, or if a different method of debt recovery is more appropriate. In any event, having a warrant itself may provide incentive to the debtor to repay the debt or negotiate a settlement.