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You may expect the mortgage on the property you’re selling to be paid out and the remaining proceeds to come to you. That assumption can be wrong when another property also secures the same loan facility.
The short answer: Tell your conveyancer and lender before signing if two properties may secure the same facility. The lender must confirm that it will release the property being sold and what it requires from the sale proceeds, while your conveyancer coordinates the contract, title and settlement work. Don’t commit an expected surplus elsewhere until the lender’s requirements are confirmed in writing.
What does it mean when two properties secure the same loan facility?
A mortgage gives a lender security over specified property. Where two properties support the same facility, each title may show its own registered mortgage even though the debts and securities are linked.
This is often called cross collateralisation. For a seller, the practical question is what the documents show: which mortgages are registered on each title, which facility they support and what the lender requires before releasing the title being sold.
An ordinary mortgage discharge removes the outgoing lender’s mortgage from the property being transferred. If the lender will keep security over another property or keep part of the facility in place, it may assess the request as a partial discharge or release of security.
Why can a partial discharge change the money available at settlement?
The sale price does not tell you how much money will be left after settlement. Before releasing one property, the lender may assess the debt and the security that will remain. Its confirmed instructions determine how much it requires from settlement.
That assessment is separate from the sale contract. The buyer pays the purchase price under the contract. The lender decides what it needs before releasing its registered security, and your conveyancer coordinates the authorised payment through settlement.
Suppose a seller has two properties securing the same facility. They sell one expecting to use most of the net proceeds for another purchase. The lender later confirms that more of the sale proceeds must be applied to the debt before it will release that title. The sale may still proceed if the release is approved, but less money is available for the next transaction.
If the lender’s requirement and other sale payments exceed the available funds, the issue may also become a seller shortfall at settlement.
What should you check before signing the sale contract?
Start with the titles and the lender rather than an estimate of your equity. Ask your conveyancer and lender to help confirm:
- the mortgages, caveats and other registered interests affecting the title being sold
- whether the same lender also holds security over another property
- whether a full discharge, partial discharge or another release request is needed
- what documents, valuations or assessment steps the lender requires
- how much of the sale proceeds the lender expects to receive, and whether that amount is provisional
- how long the lender needs to approve and prepare the release
- whether the proposed settlement date is linked to another purchase.
A Victorian Section 32 statement contains prescribed title information, including mortgages. Your conveyancer can prepare the contract and Section 32 statement and take the release timing into account when the settlement date is set. The title disclosure does not replace the lender’s separate release assessment.
What does the conveyancer coordinate, and what stays with the lender?
The lender controls its security release assessment and financial requirements. Your conveyancer coordinates the legal sale, title and settlement work.
That work can include reviewing current title searches, preparing the contract and Section 32 statement, recording the agreed settlement date, coordinating the outgoing lender in the electronic settlement process, checking payout directions and settlement figures, and arranging the transfer and discharge instruments for lodgment.
The lender may require its own forms, a valuation or other assessment steps before approving the release. Your conveyancer still needs the lender’s confirmed release and payout instructions to complete the transfer on the required basis.
What if you have already signed the contract?
Act early. Give your conveyancer the signed contract, details of both properties and the known loan information. Tell the lender clearly that one property is being sold while another may remain as security for the same facility.
Ask the lender for written confirmation of the release request, outstanding documents, assessment steps and timing. Do not treat an online loan balance as the final amount required to release the property.
Your conveyancer can monitor the title and settlement process, coordinate the lender’s participation and check the contract position if the release is not ready. Late approval can contribute to a delayed property settlement, so address the release well before settlement day.
Which documents should you gather?
Useful records can include:
- the signed sale contract and settlement date
- current loan statements for linked accounts
- the lender’s discharge or security release form
- written lender correspondence about any valuation, assessment or payout requirement
- details of the property that will remain as security
- the contract and settlement date for any linked purchase
- details of available funds if a seller contribution may be needed.
The lender decides whether it will release its security and on what financial requirements. Your conveyancer checks the contract, title, settlement figures and registration steps needed to complete the transfer.
Frequently asked questions
Can I sell one property if two properties secure the same loan facility?
The sale may be able to proceed if the lender agrees to release its mortgage from the title being sold. The lender may require documents, a valuation, an assessment or part of the sale proceeds before confirming that release.
Will I receive all sale proceeds left after paying the loan balance shown online?
Not necessarily. An online balance may not be the amount required to release one property while another property or part of the facility remains in place. Rely on the lender’s confirmed settlement instructions and the completed settlement figures.
Does my conveyancer approve the partial discharge?
No. The lender approves its security release and sets its financial requirements. Your conveyancer reviews the title and contract, coordinates the lender’s settlement participation and manages the transfer, payout and lodgment steps.
About the Pearson Chambers Conveyancing team
Pearson Chambers Conveyancing assists residential buyers, sellers and property owners across Melbourne and Victoria. We prepare sale contracts and Section 32 statements, review titles and coordinate lender and electronic settlement requirements. Where one property is being released while another remains as security, we can manage the conveyancing steps once the lender confirms its release requirements.
Sources we consulted
Selling one property while another remains as security?
Pearson Chambers Conveyancing can check the titles, prepare your contract and Section 32 statement, coordinate the lender’s release through the settlement process and manage the sale through settlement.
Email contact@pearsonchambers.com.au before committing expected sale proceeds to another transaction.
General information only, current as at the date of publication. Victorian conveyancing rules and legislation change frequently. Please contact the Pearson Chambers Conveyancing team for advice on your specific contract.