s 18A(1), (2)
Two moments the rule covers
Section 18A works at the start of the contract and at every change to it. Its first two subsections read:
“(1) A credit provider must not enter into a credit contract for a reverse mortgage that provides a basis for beginning enforcement proceedings relating to the contract for an event described in subsection (3).”
“(2) A credit provider must not agree to change, or unilaterally change, a credit contract for a reverse mortgage so that it provides a basis for beginning enforcement proceedings relating to the contract for an event described in subsection (3).”
National Credit Code, section 18A(1) and (2)So the rule is not met just by a clean contract on the day it is signed. A later change is caught too, whether the borrower agrees to it or the credit provider makes it alone.
Under section 88, a credit provider must not begin enforcement proceedings unless the borrower is in default, has been given a default notice allowing at least 30 days to put it right, and has not done so. Section 18A works earlier than any notice: it decides which events can be a ground at all. Section 88 backs it up, as the default notice explains: a notice about an event section 18A bars is, so far as it relates to that event, not a default notice for the provisions section 88(7A) lists.
s 18A(3) the events
The events section 18A lists
Subsection (3) opens: “For the purposes of subsections (1) and (2), the events are as follows:”. Among the events it then lists are these six, given here in the Code’s words with a plain reading under each. The full list is in section 18A(3) of the Code itself.
“the debtor failing, when the debtor occupies the reverse mortgaged property, to give the credit provider evidence that the debtor, or another person nominated by the debtor to the credit provider, occupies or occupied the reverse mortgaged property;”
While the borrower lives in the home, not giving the lender proof of who lives there, the borrower or a person they have nominated, may not be made a ground for enforcement.
“the debtor leaving the reverse mortgaged property unoccupied while it is the debtor’s principal place of residence;”
The home standing empty for a time, while it is still the borrower’s principal place of residence, may not be made a ground either.
“the debtor failing to pay a cost to a person other than the credit provider within 3 years after the payment became due;”
Failing to pay a cost owed to someone other than the lender within 3 years after it fell due may not be made a ground.
“the debtor failing to comply with a provision of the credit contract if the contract does not make it clear how the debtor is to comply with the provision;”
If the contract does not make clear how a term is to be met, a failure to meet that term may not be made a ground.
“the debtor breaching another credit contract with the credit provider;”
A breach of a different credit contract with the same credit provider may not be made a ground for enforcing the reverse mortgage.
“an event that involves an act or omission by the debtor and is prescribed by the regulations.”
The regulations can add events to the list, where the event involves something the borrower does or fails to do.
This guide reads “the debtor” as the borrower and “the reverse mortgaged property” as the home.
Binds credit provider
Who the rule binds
Every duty in section 18A falls on the credit provider, the lender under the contract. It is the credit provider that must not enter into a contract carrying one of these grounds, and the credit provider that must not agree to a change, or make one alone, that adds one.
The rule reaches the contract itself, not only what a lender does later. That makes it something a borrower can check on paper: the clauses that say when the lender may enforce can be read against each event above, before signing and again when any change is proposed.
Checking
Reading a contract against section 18A
These are the questions the section lets a reader put to the default or enforcement clauses of a reverse mortgage contract. Each one matches an event above.
| Event | Does a clause make this a ground for enforcement? |
|---|---|
| (b) | Not giving evidence of who occupies the home, while the borrower lives there |
| (c) | Leaving the home unoccupied while it is the borrower’s principal place of residence |
| (d) | Not paying a cost owed to someone else within 3 years after it fell due |
| (e) | Breaking a term the contract does not make clear how to meet |
| (f) | Breaching another credit contract with the same lender |
| (g) | Any event the regulations prescribe that involves something the borrower does or fails to do |
The nominated person in event (b) has rights of their own under the Code, set out in other people living in the home.
Complaints
When a contract seems to cross the line
Moneysmart says credit providers belong to an external dispute resolution scheme, which hears complaints for free, and names the Australian Financial Complaints Authority (AFCA) as an independent scheme for disputes with financial firms. Its first step is a formal complaint to the business in writing, which it calls internal dispute resolution. For help with the process, Moneysmart says free legal advice may be available from a community legal centre.
The other duties a reverse mortgage lender carries begin before the contract: the information statement and the projections, in the statement, the name and legal advice. What happens if a lender does enforce is in the default notice and when the lender sells.