Mortgage: Body Corporate v. Donovan

The body corporate controlling a block of Tauranga office suites bought up a second mortgage at a discount attempting to force out the owner and to recover amounts due for unpaid levies.  Bankruptcy meant the owner was not liable.  A court order for possession was overturned.

Michael Donovan is in possession of an office suite at 30 Willow Street, Tauranga.  He purchased with first mortgage finance from Rice Craig solicitors and second mortgage finance from Belgrave Finance Ltd.  He was bankrupted in January 2009.  The High Court was told he has defaulted on his mortgage debt and body corporate levies are unpaid.  Both mortgages have been sold.  In 2016, the body corporate purchased from Belgrave liquidators the second mortgage, paying $500 for a mortgage ostensibly securing $300,000 plus.  It later sued Mr Donovan for $389,000 being the mortgage debt plus accrued interest.

Associate judge Christiansen said Mr Donovan is not liable.  On bankruptcy, Belgrave (the then owner of the second mortgage) had the choice of enforcing its mortgage or surrendering its security and proving as one of Mr Donovan’s unsecured creditors.  It did not claim as an unsecured creditor.  The body corporate has no better rights than Belgrave.  Its right to recover against Mr Donovan personally came to an end on his 2013 discharge from bankruptcy.

The Insolvency Service disclaimed any right to Mr Donovan’s office suite, considering there was no equity in the property.  At law, the property is now owned by the crown.  Mr Donovan is in possession.  There was evidence that Mr Donovan is letting the office suite to tenants though he is no longer the owner.  Both secured creditors still have the right to force a sale.
Body Corporate v. Donovan – High Court (14.02.18)

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