Article published by Toni Maree Camilleri of Secure E Conveyancing May 2026
I felt compelled to write this article to share my experience with a recent matter whereby my client was purchasing a property and the Vendors mortgage payout amount exceeded the sale price on the contract of sale.
By way of Background
In a New South Wales property transaction, a “mortgage shortfall” occurs when the vendor owes their bank more than the final sale price. This creates a critical roadblock because the bank will typically refuse to release the title (discharge the mortgage) until the full debt is repaid. If the vendor cannot bridge this gap with personal funds, they cannot legally complete the sale, placing them in serious breach of the Contract for the Sale and Purchase of Land.
Under NSW Law
Under NSW law, specifically the Conveyancing Act 1919 (NSW), the vendor is legally obligated to deliver a clear title at settlement. If they cannot discharge their mortgage, they are technically in repudiation or anticipatory breach of contract.
Unlike a purchaser, who often faces stiff daily penalty interest for delays, a vendor in NSW generally does not pay penalty interest to the buyer. However, they are still exposed to significant legal and financial liabilities.
Immediate Action: The Notice to Complete
When a vendor fails to settle due to a shortfall, the purchaser’s first formal step is usually to issue a Notice to Complete.
- 14-Day Window: This notice typically gives the vendor an additional 14 days to resolve the issue (e.g., by securing a personal loan or selling other assets).
- Time is of the Essence: Serving this notice makes time “of the essence,” meaning any failure to settle by the new deadline allows the purchaser to terminate the contract immediately.
Outcomes if the Vendor Still Cannot Settle
If the 14-day notice period expires and the vendor remains unable to provide a clear title, the purchaser has several options:
- Termination and Refund
The most common path is for the purchaser to terminate the contract. In this scenario:
- The deposit must be refunded in full to the purchaser.
- The vendor may be liable for the purchaser’s reasonable legal costs and inspection fees incurred during the failed transaction.
- Suing for Damages
If the purchaser has suffered a financial loss because the deal fell through, they can sue the vendor for damages. This might include:
- Loss of Bargain: If the market value of the property has increased since the contract was signed, the purchaser may claim the difference between the contract price and the current market value.
- Consequential Losses: Costs like storage fees, temporary accommodation, or lost opportunities on other properties.
- Specific Performance
In rare cases, a purchaser might seek a court order for specific performance, forcing the vendor to complete the sale. However, this is difficult if the vendor simply does not have the money to pay off the bank; a court cannot easily force a bank to release a mortgage without being paid.
Can the Bank Intervene: If the vendor is in deep financial trouble, the bank might eventually step in and conduct a mortgagee sale.
- Existing Contract: The bank is not necessarily bound by the vendor’s existing contract with the purchaser.
- New Terms: If the bank takes over, the original purchaser may have to re-negotiate or bid for the property under different, often less protective, “mortgagee in possession” terms.
Take away considerations for Purchasers.
- You must satisfy yourself that the vendor sale price does not exceed any mortgage amount
- You must never consent to a release of the deposit prior to settlement, if something goes wrong it may be extremely difficult to recover that deposit.
For more information or to start a quote, visit www.secureeconveyancing.com.au or contact the team 0430 351 008
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