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What are the typical providers of real estate financing in your jurisdiction? Are there any restrictions on who may provide financing?
Lending, particularly consumer lending, is heavily regulated in Australia. The financing of real estate purchases is heavily dominated by the big four banks (Commonwealth Bank of Australia, Westpac, Australia and New Zealand Banking Group and National Australia Bank) which, combined, control nearly 85% of the home loan market. Non-bank, overseas and mezzanine lenders are common in the commercial and development spheres.
What are the most common structures used to secure real estate financing and how are these security interests perfected?
Most residential loans are secured by a loan agreement and a real property mortgage which is registered on the title to the property. Commercial loans often involve a shareholder guarantee and indemnity and a security agreement granting a security interest over the borrower company, as well as the real property mortgage. Registration is required to perfect these interests (the mortgage on title and the security interest on the security register).
What covenants are typically made in financing agreements?
Covenants are extensive and encompass the obligation to repay the loan, the provision of default interest and the rights of the lender on default, as well as general obligations to maintain and insure the property and to notify the lender of any material matters.
Enforcement of security
How are security interests enforced in the event of default?
Legislation differs in each jurisdiction, but generally a default is enforced through the issue of a notice in the form required by legislation, following which the lender takes possession of the property and sells as mortgagee in possession. Where a company owns the property, a secured creditor may appoint a receiver over the company in order to facilitate a sale.
What is the typical timeframe for the enforcement of security?
Timeframes can vary depending on the terms of the mortgage and the event of default relied upon. In most states, for a mortgagee to exercise a power of sale, a notice must be issued which allows at least one month for the borrower to remedy the default.
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