When the Bank Comes Knocking: A Mortgagee's Power of Sale and What Default Really Means

Borrowing against property is one of the most common transactions in Australia from a family home loan to a multi-million dollar commercial facility. Most of the time the arrangement runs its course without incident. But when a borrower cannot repay, the consequences can be swift and severe: a mortgagee has powerful, well-established rights to take possession of the secured property and sell it. Borrowers (and the guarantors who stand behind them) often underestimate just how quickly those rights can be enforced and how narrow the grounds are for resisting them.

A recent decision of the Supreme Court of New South Wales, NNW Financial Pty Ltd v Confos [2026] NSWSC 434, is a clear, practical illustration of a mortgagee exercising its rights on default and of what happens when a borrower’s attempt to challenge the loan documents runs out of steam. It is essential reading for anyone borrowing against property, guaranteeing a loan, or lending money on the security of land.

What a mortgage really gives the lender

When you grant a mortgage over land in New South Wales, you are giving the lender (the mortgagee) security for the debt. Under the Torrens system established by the Real Property Act 1900 (NSW), that security carries with it two especially potent remedies if you default: the right to take possession of the property, and the power to sell it and apply the proceeds to the debt.

These remedies are not automatic – the Act sets out a process. Before a mortgagee can exercise its power of sale, section 57(2)(b) requires it to serve a written notice on the mortgagor, demanding that the default be remedied and warning that the property may be sold if it is not. Only once that notice has been given, and the default remains unremedied for the required period, does section 58 empower the mortgagee to sell. (Where the loan is a regulated home loan under the National Credit Code, additional protections and notice periods apply; the case discussed here concerned a commercial loan, where those consumer protections did not apply.)

A mortgage is also frequently supported by a guarantee. A guarantor promises the lender that if the borrower does not perform, the guarantor will and typically also gives an indemnity for the lender’s losses. Where a company borrows, its director will often be required to guarantee the loan personally and to mortgage their own property as security. That is precisely what happened here, and it is why the individual behind the borrowing company found his own home on the line.

Borrowers who fall into default sometimes seek to challenge the enforceability of the loan itself arguing the contract was “unjust” under the Contracts Review Act 1980 (NSW), or that it was unconscionable, or the product of undue influence or unequal bargaining power. These arguments can succeed in the right case, particularly for vulnerable consumers. But, as this decision shows, they must actually be run and proved – a bare allegation that evaporates at the hearing achieves nothing.

The facts: an $8.55 million loan and a default

The borrower was Dover Heights Holdings Pty Ltd (DHH), a company whose sole director and shareholder was Mr George Confos. In May 2024, the lender, NNW Financial Pty Ltd, agreed to lend DHH $8,550,000. The loan was short, a six-month term at an interest rate of 10%, with the whole of the interest ($427,500) deducted up front from the advance. The loan agreement provided for a higher default rate (20% compounding) if repayment was not made on time.

The loan was secured and supported by a suite of documents, all executed on the same day: the loan agreement itself; a Deed of Guarantee, under which Mr Confos personally guaranteed DHH’s obligations and gave an indemnity for the lender’s losses; a General Security and Mortgage Deed; and a first-ranking mortgage over a property at Dover Heights in Sydney’s eastern suburbs. The security documents spelled out the “events of default” (including simple failure to repay) and the lender’s enforcement rights including an express power to sell the security property as it saw fit.

Repayment was due on 16 November 2024. It did not happen. Apart from the interest that had been deducted at the outset, none of the loan was repaid.

The lender moved to enforce. On 31 January 2025 its solicitors served a Notice of Enforcement, identifying the default and declaring the whole of the secured money immediately due and payable. On the same day, it served a Demand and Notice to Pay under section 57(2)(b) of the Real Property Act — the statutory precondition to exercising the power of sale, warning that if the debt was not paid, the mortgaged property could be sold. When the debt still went unpaid, the lender commenced proceedings seeking possession of the Dover Heights property.

The borrower’s challenge and how it collapsed

Mr Confos did initially defend. His defence, filed in May 2025, was unusual: it substantially admitted the loan agreement, the guarantee, the security deed and the mortgage, but denied that the lender was entitled to possession because of a cross-claim he had filed. In that cross-claim he alleged that all of the agreements were unjust, unconscionable, or the product of undue influence and unequal bargaining power, relying on the Contracts Review Act, the Australian Securities and Investments Commission Act 2001 (Cth) and the general law. If made out, those arguments would have rendered the documents unenforceable.

But the cross-claim was never run. Mr Confos’s lawyers ceased acting shortly before the hearing, and he did not appear. When the matter was called and there was no response, the judge commendably asked the lender’s solicitor to telephone him in case he was merely running late. He was reached and was expressly offered an adjournment to give him time to come to court and defend. He declined, saying there was no point because he had no lawyer and was not a lawyer himself.

Because he chose not to appear or pursue his cross-claim, the cross-claim fell away, and with it the only obstacle to the lender’s case. The allegations in the statement of claim — which he had largely admitted stood effectively unchallenged.

The Court’s decision

Even though the borrower’s case had collapsed and the claim was effectively admitted, Justice Elkaim did not simply rubber-stamp the orders. He required the lender’s counsel to take him through the evidence so that he could be satisfied the lender had actually proved its case. That is an important feature of the decision: a mortgagee seeking possession must still put on proper evidence of the loan, the security, the default and the required notices — the court does not grant possession of someone’s property on assertion alone.

Satisfied that the transaction documents were in order, that default had occurred, and that the Section 57 notice had been validly given, the Court entered judgment for the lender for possession of the whole of the Dover Heights property; granted leave to issue a writ of possession immediately; dismissed the cross-claim and awarded the lender its costs, including enforcement costs under the mortgage, on an indemnity basis. (The judgment also noted a separate, reserved dispute involving a lower-ranked mortgagee over the same property, a reminder that priority between competing mortgagees is its own battleground.)

The practical lessons

NNW Financial v Confos is a straightforward case, and that is exactly what makes it instructive. Several lessons stand out.

Default has real and rapid consequences. A mortgagee’s rights to possession and sale are among the most powerful remedies in commercial law. Once a genuine default has occurred and the statutory notice has been given, a borrower who cannot pay or refinance is in a very weak position. Do not assume there will be endless time to sort things out.

Guarantors put their own assets on the line. Mr Confos guaranteed his company’s loan and mortgaged property as security. When the company defaulted, the consequences landed on him personally. Anyone asked to guarantee a loan – a director, a family member, a business partner must understand that they are promising to pay if the borrower does not and that their own property may be sold to satisfy the debt. Get independent advice before signing.

Read (and take advice on) the loan documents first. This loan carried a 10% rate over six months with interest deducted up front and a 20% compounding default rate. Those are commercial terms with serious consequences. The documents recorded that the borrower had obtained independent legal advice, a common warranty and one that makes it much harder to complain later. The time to scrutinise terms is before you sign, not after you default.

Challenges to a loan must be run and proved, not just alleged. The Contracts Review Act and unconscionability doctrines are real protections, but they are not magic words. Here, the borrower had pleaded them and then failed to appear and prove them, so they simply evaporated. If you have a genuine defence, you must advance it with evidence; if you do not, engaging early to negotiate or refinance is usually a far better path than a defence that cannot be sustained.

Mortgagees must still follow the process. For lenders, the case is a reminder that the power of sale is conditional. The correct notices under section 57 must be served, the events of default must be established, and the evidence must be assembled because even in an undefended case, the court will require proof. Cutting corners on the enforcement process can be fatal to a possession claim.

Engage early on both sides. For borrowers in difficulty, the worst response is to disengage, as happened here. Early, realistic engagement seeking to refinance, sell on your own terms, or negotiate almost always produces a better outcome than a forced mortgagee sale and an indemnity cost order.

How Shire Legal can help

Whether you are borrowing against property, being asked to sign a guarantee, or facing a notice of default, understanding your rights and obligations before the situation escalates is critical. At Shire Legal, we help clients across the Sutherland Shire and beyond to review loan and security documents, advise guarantors on their exposure, respond to default and enforcement notices, and for lenders to enforce security correctly. We also advise on refinancing, negotiated sales and disputes between competing mortgagees.

If you would like advice tailored to your situation, contact Shire Legal or book an appointment to speak with our team.

This blog provides general information and should not be construed as legal advice. Laws may have changed since the publication of this content. We recommend consulting with a qualified legal professional to ensure compliance with current legislation and to address specific circumstances.