The Supreme Court of Victoria in the case of Zhou v Kousal recently overturned the sale of a property which sold at auction for $1,000.00 but had a value of $630,000.00.
A warrant of seizure and sale was issued over Mr Zhipping Zhou’s home following his failure to repay a $104,155.82 debt to a creditor. The property was valued at $630,000.00 for the purposes of setting a reserve price for an auction sale by the Sheriff. This value included a mortgage in favour of Suncorp Metway Limited valued at $453,345.50 and unpaid council rates in the sum of $7,691.10, leaving Mr Zhou with equity in the property of $164,963.40.
At the first auction, the Sheriff received no bids and the property was passed in. The Sheriff then obtained a court authorisation to hold a second auction without a reserve price. The property was sold at the second auction to Mr Ronald Kousal for the sum of $1,000.00 subject to the mortgage to Suncorp Metway Limited.
Mr Zhou subsequently appealed to the Supreme Court of Victoria to overturn the sale and prevent registration of the transfer.
In deciding to over-turn the sale, Judge Vickery found that:
- the Sheriff had a common law duty to obtain a fair price;
- the sale price did not represent either the value of the property or Mr Zhou’s equity of approximately $165,000.00;
- the Sheriff had breached its duties under the Sheriff Act 2009 in that, despite the earlier court order authorising a sale without a reserve, it must obtain a fair price;
- Under the circumstances, the Sheriff could not:
- be said to have acted reasonably when exercising its power of sale; and
- the sale could not meet the purpose of applying proceeds towards the amount due to the creditor, as there were no such funds available.
The court found that the purchaser, Mr Kousal could not obtain a good title to the property as the Sheriff’s conduct in failing to comply with the Sheriff Act when exercising its power of sale, rendered the sale ineffective.
Buyers should be aware that a court may be prepared to set aside a sale where the sale process has not been properly undertaken. On a broader perspective, the decision may open the door for other forms of enforced sales to be questioned.
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