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Business finance

Caveat loans, explained

A caveat loan is short-term business funding secured by a caveat lodged on your title. It is quick, it is expensive, and it carries risks that are easier to manage if you know them before you sign.

Edward Chan

Edward Chan

Head of Compliance and Broker Support

· 9 min read

A commercial property held as security while short-term funding is arranged against its title

What a caveat is

A caveat is a notice lodged at the state land titles office recording that someone claims an interest in a piece of land. It is not a mortgage and it does not transfer anything. What it does is act as a statutory warning: while it sits on the title, the registrar will not register most further dealings, so the owner cannot sell or refinance without dealing with the person who lodged it.

To lodge a caveat you need a caveatable interest, which in lending is created by the loan documents themselves. The agreement contains a charging clause, or an agreement to grant a mortgage, and that gives the lender an equitable interest in the land capable of being protected by caveat. Lodging a caveat without a proper interest can expose the caveator to a compensation claim, which is one reason the documentation is not a formality.

Caveat
A notice recorded against a title claiming an interest in the land. It registers nothing and transfers nothing. It stops most further dealings until it is dealt with.
Caveatable interest
The underlying equitable interest that entitles a party to lodge. In lending it comes from the charging clause in the loan agreement, not from the loan itself.
Registered proprietor
The owner recorded on the title. They are the party who can apply to have a caveat removed or serve a lapsing notice on the caveator.
Lapsing notice
A notice requiring the caveator to obtain a court order sustaining the caveat within a short statutory window. The length of that window differs between states.
Withdrawal of caveat
The document the lender signs to take the caveat off the title, normally held by their lawyer and released against payment at settlement.

A caveat does not make a lender a mortgagee. It makes them a problem the owner has to solve before the title can move.

What a caveat loan is, and is not

A caveat loan is a short-term, business-purpose advance where the lender protects its position by lodging a caveat rather than registering a mortgage. Terms are short, often one to twelve months. Interest is usually prepaid or capitalised, so there may be no monthly repayment at all. Assessment is driven by the equity in the property and by the exit, not by servicing calculations.

It is not a cheap loan, it is not a long-term loan, and it is not a substitute for a properly structured facility. It is a bridge, and it should be treated with the seriousness of one. It is also almost always business or investment purpose credit, which means the consumer protections in the National Consumer Credit Protection Act generally do not apply.

Caveat loan versus second mortgage

Both sit behind an existing first mortgage. The difference is registration, and registration is what determines how much cooperation you need and how quickly the money can move.

Caveat loan

  • Registered on title: no. A caveat is lodged, not registered as an interest in the land
  • First mortgagee consent: not usually sought, though the first mortgage terms may still be breached
  • Typical speed: days
  • Typical term: one to twelve months
  • Relative cost: higher, reflecting the weaker security position and speed
  • Enforcement position: weaker. The lender holds an equitable interest and generally must go to court to enforce

Second mortgage

  • Registered on title: yes, registered behind the first mortgage
  • First mortgagee consent: normally required, often via a deed of priority or consent
  • Typical speed: one to three weeks, driven by the consent
  • Typical term: six to thirty-six months
  • Relative cost: lower than a caveat loan, higher than a first mortgage
  • Enforcement position: stronger. A registered mortgagee has statutory enforcement powers, subject to the first mortgagee

General differences. Requirements vary by state and by the terms of your existing mortgage.

Three ways to raise money against a property you already own

Speed is the only row a caveat wins, and it wins it because nothing is registered and nobody is asked. Where the deadline allows two or three weeks, a registered instrument is cheaper, longer and safer on every other line. Work out what your timeline genuinely allows before you accept the fastest option.

General characteristics only. Requirements differ by state and by the terms of your existing mortgage, and every structure is subject to lender assessment.

View as a table
Caveat loanSecond mortgageRefinance the first
Registered on the titleNoYesYes
Needs your existing lender to cooperateNoYesSometimes
Can settle inside a weekYesSometimesNo
Runs beyond twelve monthsNoYesYes
Lender holds statutory enforcement powersNoYesYes
Prices at the cheap endNoSometimesYes

If there is time and the first mortgagee will consent, a second mortgage is usually the better instrument. A caveat loan earns its place when the deadline is measured in days, or when consent will not be forthcoming and the exit is short and certain.

What it costs

As with any private facility, we do not quote rates and no one should imply a rate is available to you before assessment. Price it as a total dollar figure across the expected term, and insist on seeing the net advance before you commit.

  • Interest, commonly prepaid for the full term or capitalised into the balance
  • An establishment or line fee deducted at settlement
  • Lender legal costs for preparing the loan agreement and caveat documents
  • The titles office lodgement fee for the caveat, and later the withdrawal fee
  • A valuation fee, or a lender-accepted desktop assessment on smaller advances
  • Broker fee, disclosed to you before you proceed
  • Extension fees if the term runs out before the exit lands
  • A default rate, usually applied to the whole balance from the date of default

The risks people find out about late

Your first mortgage may prohibit it

Standard mortgage terms commonly restrict granting further interests over the property without consent. A caveat appearing on title can therefore constitute a breach, and the first mortgagee may treat it as an event of default or use it as grounds to review the facility. Check your existing mortgage terms, and take legal advice if the wording is not clear.

A caveat can be challenged

A registered proprietor can apply to have a caveat removed, and can serve a lapsing notice requiring the caveator to obtain a court order sustaining the caveat within a short statutory window. The length of that window differs between states. If a caveat is being lodged against your property in circumstances you dispute, this is a matter for a property lawyer rather than a broker.

The point where a caveat stops being a lending question and becomes a legal one
A lapsing notice shifts the burden back onto the caveator to go to court inside a short window. That window is set by state legislation, not by the loan agreement, which is why a property lawyer belongs in any dispute.

It blocks your own refinance

The mechanism that protects the lender also constrains you. Until the caveat is withdrawn, an incoming bank cannot register its mortgage, so your exit refinance depends on the caveat lender producing a payout figure and a withdrawal on time. Ask at the outset how long they take to issue both, and get it in writing.

The term is genuinely short

A three-month facility with a four-month exit is a default waiting to be documented. Build a buffer, and understand what the extension will cost before you need it rather than in the week you do.

When a caveat loan is the right tool

There is a narrow band where a caveat loan is the sensible answer rather than the desperate one. It looks like this.

  • The deadline is external and fixed, such as a statutory response period, a settlement date or an auction date
  • There is genuine equity in the property after the first mortgage, the new advance, capitalised interest and every cost
  • The exit is documented and dated, not hoped for
  • The amount is modest relative to the property value, so a slow sale does not erase the margin
  • A cheaper facility exists but cannot be arranged in the time available

What $400,000 of equity has to cover

The advance is the smallest thing the equity carries. Interest, costs and a real extension buffer all sit inside the same margin, and what remains is what protects you if the property has to be sold slowly. When that last band is thin, the deal is not ready to be written.

Illustrative projection only. The advance, the interest treatment and the fees are set by the lender and by the valuation. Not a quote and not an offer of credit.

View as a table
ComponentAmountShare
The advance$150,00038%
Interest capitalised across four months$21,0005%
Fees, legal and lodgement costs$11,0003%
A two-month extension, if the exit slips$12,0003%
Margin still left in the equity$206,00052%
Total$400,000100%

If more than one of those is missing, the honest answer is usually a different structure or a different conversation. We will say so. Telling a client early that the product does not fit is a better outcome than settling a loan that unravels in month four.

Getting the caveat off again

  1. 01

    Request the payout figure early

    Ask for a payout figure at least two weeks before the intended settlement, and ask what it includes: interest to the settlement date, discharge fee, legal costs and any minimum interest period.

  2. 02

    Book the withdrawal with settlement

    The lender executes a withdrawal of caveat, held by their lawyer and released against payment at settlement. Confirm who is holding it and how it will be delivered on the day.

  3. 03

    Coordinate with the incoming lender

    The incoming mortgagee cannot register while the caveat sits on title, so both sides have to settle together. Your conveyancer or lawyer runs this; make sure they have the caveat lender's contact details well ahead.

  4. 04

    Verify the title after settlement

    Do not assume the withdrawal was lodged. Have a title search done a few days after settlement to confirm the caveat is gone, and keep the search on file.

Settlement day, when the title finally comes back clear
Nothing is finished until a title search shows the caveat gone. Withdrawals are occasionally signed and never lodged, and the cost of finding that out at the next refinance falls on the owner.

Before you sign

  1. 01Read your existing mortgage terms, or have a lawyer read them, to see whether a caveat breaches them
  2. 02Get the net advance in writing, after prepaid interest and every fee
  3. 03Confirm the total cost across the full term, and the cost of a one-month and three-month extension
  4. 04Confirm whether the default rate applies to the arrears or the whole balance, and from what date
  5. 05Confirm how many business days the lender needs to issue a payout figure and a withdrawal of caveat
  6. 06Confirm the loan is genuinely for business or investment purposes, and that the declaration you sign is accurate
  7. 07Have your own lawyer review the loan agreement before you execute it

WeL’nd is a broker, not a lender, and nothing here is legal or tax advice. Caveat law is state-based and fact-specific, and a property lawyer should review any caveat arrangement before it is signed. Anything we discuss ahead of a formal offer is indicative only, is not an offer of credit or a quote, and is subject to lender assessment.

FAQ

Questions people actually ask

If yours is not here, ask it. We would rather answer the awkward one early than have you find out later.

1300 015 267
How quickly can a caveat loan settle?
Faster than almost anything else secured by property, because there is no registration process and often no full valuation on smaller advances. A few business days is realistic where the title is clean and the documents are signed promptly. Complications in the title, a required valuation, or a company borrower with an unusual structure will add time.
Do I need my current bank's permission?
Consent is not usually sought for a caveat, which is precisely why the product is fast. That does not mean it is free of consequence. Many mortgage contracts restrict granting further interests in the property, so a caveat may breach your existing terms. Read the mortgage, or have a lawyer read it, before you proceed.
Can a caveat loan be used on my family home?
Only where the purpose is genuinely business or investment. Credit for personal, domestic or household purposes is regulated consumer credit and most caveat lenders will not write it. Never sign a business purpose declaration for money that is going to personal use. If your home is the only available security, that is a conversation to have carefully and slowly.
What happens if I default on a caveat loan?
A default rate typically applies to the whole balance from the date of default, and the lender can take enforcement action. Because a caveat protects an equitable interest rather than a registered mortgage, enforcement usually means going to court, which is slower and more expensive for both sides. That expense generally lands on you under the loan terms, so early contact when a repayment date is at risk is far better than silence.
Is a caveat loan the same as a second mortgage?
No. A second mortgage is registered on title, normally requires the first mortgagee's consent, runs longer and prices better. A caveat loan is not registered, is faster to arrange, sits in a weaker enforcement position and costs more. Where there is time and consent is available, a second mortgage is usually the better instrument.
How do I get the caveat removed once I have repaid?
The lender provides a withdrawal of caveat in exchange for the payout amount, and it is lodged at the titles office, normally as part of settlement. Ask upfront how many business days they require to issue the payout figure and the withdrawal, and run a title search afterwards to confirm it has actually come off.

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