Liability of Mortgage Originators:

Perpetual Trustee Australia Limited v Schmidt [2010] VSC 67

Mortgage originators should make a reasonable effort to ensure the details in loan application documents are correct, and not turn a blind eye to the question of whether the borrower will be able to service the loan repayments. Failure to do so may constitute unconscionable conduct and lead to liability.

Background

Perpetual loaned money to Schmidt. Perpetual had nothing to do with the loan, other than providing the funds. The loan was arranged by a finance broker ('Medallion') and a mortgage originator ('Violet'). Medallion introduced prospective borrowers to Violet. Violet was responsible for processing loan applications, and managing the loan contracts. Schmidt defaulted. Perpetual sued him in the Victorian Supreme Court to recover the outstanding principal and interest.