Insights

Before advancing funds, a lender needs to know who is benefiting, whether each guarantor understands and freely accepts the risk, and how the loan will be repaid. Finding a problem at that stage gives the lender a chance to resolve it before its money is at risk.

Two recent NSW Supreme Court decisions show the difference. In Patel, the lender obtained possession and defeated the guarantors’ cross-claim. In Confos, the guarantee and indemnity were declared void and the mortgage was set aside. Both cases involved firms within our group: Summer Lawyers acted for the successful lender in Patel, and Cadre Moss acted for the successful guarantor in Confos. Finance Law’s focus here is what lenders should do when structuring and settling a loan.

These are practical recommendations drawn from the judgments, not a universal legal test. Each transaction requires assessment on its own facts.

Verify the people and the repayment plan

1  Work out who benefits from the loan

Identify the borrower, who is directing the transaction, who will receive the funds and why each guarantor is participating. If the loan refinances an earlier debt, establish whose debt is being paid and whose personal liability is being released. Keep that explanation with the statement showing where the funds will go.

In Confos, discharging an earlier mortgage did not establish a real commercial benefit when the Court examined the earlier transactions, the undue influence and the release of Mr Adgemis’s liability. Ask what the benefit actually is and check the answer. These decisions do not require every guarantor to receive loan proceeds.

2  Make the loan amount and costs clear

Provide a clear statement of the gross advance, every deduction, the net amount available, retained interest, the agreed term and the amount required at maturity. State rates consistently in monthly and annual terms where both are used. Explain what changes after maturity, on default or on an extension. Check that the offer, facility agreement and drawdown directions agree.

In Patel, the $500,000 facility produced $374,955 in net settlement funds after $99,000 in retained interest and other deductions. That distinction matters to a borrower planning to discharge debt or fund a project. Confirm that the net proceeds actually meet the stated purpose.

Patel at [9]–[15], [23]–[26]; Confos at [121]–[130].

3  Ask each guarantor directly

Ask each person to explain the transaction and the consequences of default in their own words. Cover the amount, term, purpose, repayment source, property at risk and whether anyone is pressuring them. Resolve answers that conflict with the application or other information. Keep a dated record and obtain appropriate consent if recording.

In Patel, the lender held one Zoom meeting with both guarantors and questioned each individually. That does not make a separate recorded meeting compulsory in every loan. If someone may be controlling a guarantor’s answers, arrange a private discussion. A degree, professional background or company directorship does not establish that the guarantor is acting independently.

4  Arrange genuinely independent advice

Give the guarantor’s adviser the complete documents and enough time. Check for conflicting interests, whether someone else controls communications and whether language assistance is needed. Consider whether separate advisers are required. Check that advice conditions are met before settlement. Any proposed departure needs legal input, with the reasons and approval recorded.

In Patel, the Court accepted that legal advice had not been given despite signed declarations; other evidence supported enforcement. In Confos, the lack of truly independent legal and financial advice was significant. Check the advice process and investigate discrepancies. A signed declaration does not settle the question, and a lender’s interview does not replace legal advice.

5  Check how the loan will be repaid

A sale can be a legitimate repayment plan. Check which property will be sold, its supported value, debts ranking ahead of the loan, sale costs and timing. Calculate what will remain after interest and enforcement costs, including if the price falls or the sale is delayed. Confirm that each guarantor understands and accepts the plan, including any sale of their home.

If repayment depends on refinance, identify a credible funding source and the conditions still to be met. If it depends on business income, check the relevant financial records and contracts. The original lender, ASCF Funding Solutions Pty Ltd, was misled about the business in Patel. That finding does not make a business website a reliable way to verify its finances.

6  Review pricing and terms before using the template

Ask the legal team which laws apply, how the important terms operate and whether the charges can be justified. A company borrower or a business-purpose description does not answer those questions. Use clear costs recovery terms and retain evidence supporting the charges.

Patel upheld the particular terms challenged. Its findings under section 12BI of the ASIC Act and its rejection of the late penalty argument do not protect every interest clause from challenge. The 19.8% annual discount rate covered the agreed term through retained interest; the documents also specified a 39.6% annual standard rate if the loan was not repaid. Explain when each rate applies and what the borrower may have to pay.

Patel at [7]–[25], [30]–[32], [42]–[49], [56]–[58]; Confos at [109]–[118], [125]–[136].

Make a clear settlement decision

A checklist only helps if someone deals with the answers. Raise concerns about dependence, unexplained benefits to other people, conflicting declarations, pressure to bypass advice or an unsupported repayment plan. Record who considered the concern, what they checked and why they approved the loan.

Keep the approval and settlement record together

Retain the application and its supporting evidence, searches, valuation, credit decision, guarantor communications, advice confirmations, final signed documents and directions showing where the funds went. Assign responsibility for satisfying each condition before release. A completed form should not conceal an unanswered question.

Keep the reasons for credit decisions so anyone buying or enforcing the loan can understand what the lender checked and why it proceeded.

Revisit the decision when the loan changes

An extension, extra advance or release of security can change the risk. Recheck progress towards sale or refinance, the debt and available equity, and any change in the guarantor’s circumstances. Obtain advice on the consents and documents needed to preserve the guarantees and security. Repeated extensions need a credible repayment plan.

Settle with recovery in mind

Build these checks into the lending process and raise problems early enough to resolve them before settlement. They improve the lender’s prospects of obtaining enforceable security and recovering its money. They cannot remove the risk of loss.

Finance Law advises on the structure and documentation of lending transactions. Summer Lawyers’ companion article, Mortgage Enforcement lessons from Patel and Confos, examines the evidence and arguments that matter when a loan reaches enforcement.

Get the checks right before funds are advanced

Talk to the Finance Law Team about how these practical steps may apply to your lending documents and pre-settlement processes.

Judgments discussed

Australian Mortgage Finance Services Pty Ltd v Patel [2026] NSWSC 1085, Fagan J, 4 September 2026. Century 311 Pty Ltd v Confos; Confos v Century 311 Pty Ltd [2026] NSWSC 1115, Campbell J, 16 September 2026. References are to judgment paragraphs. The recommendations are practical controls, not statements that either Court prescribed this checklist. The judgments report first instance orders, not ultimate cash recoveries. General information only; obtain advice on your particular transaction.