By Elton Law Group
On 4 September 2026, the Supreme Court of New South Wales delivered judgment in Australian Mortgage Finance Services Pty Ltd v Patel [2026] NSWSC 1085. Justice Fagan gave the lender judgment for possession, dismissed the guarantors’ cross-claim and ordered indemnity costs on both the claim and the cross-claim (at [59]).
For private lenders taking second mortgages over residential property, the decision shows how a careful origination process stands up when guarantors later argue the loan was unconscionable, unfair or unjust. Paragraph numbers refer to the judgment so you can check any statement against the source.
The loan and the security
SSMM Pty Ltd, a company of which Mr Patel is the director, borrowed $500,000 from ASCF Funding Solutions Pty Ltd on 28 March 2024. Mr and Mrs Patel guaranteed the loan and gave a second mortgage over their Schofields home, worth about $2 million and subject to a $900,000 AMP Bank first mortgage (at [2] and [5]).
The term was 12 months. Interest was 1.65% per month (19.8% per annum) if paid on time and 3.3% per month (39.6% per annum) if not. Twelve months of interest at the lower rate ($99,000) was deducted at settlement with fees, leaving a net advance of $374,955 (at [9], [11] and [12]). The stated purpose was business working capital and the stated exit was sale of the property (at [7]).
ASCF was not told that Mr Patel already owed $425,000 to two friends at 18% and 20% per annum, who were pressing for repayment. That debt was omitted from the assets and liabilities schedule, and both Patels answered “no” to the financial pressure question (at [5], [6] and [8]). Mr Patel also invited ASCF to view his engineering business website, which the Court found was “a thoroughly misleading promotion” of a business that had never earned any income (at [18] and [19]).
After four one month extensions the loan was not repaid. ASCF assigned the mortgage to Australian Mortgage Finance Services Pty Ltd, which sued for possession (at [1] and [2]).
What the lender did right
The judgment records ASCF’s process step by step, and each step mattered:
- The declaration attached to the letter of offer carried a bold warning recommending legal advice (at [14]), and the Finance Offer added, in bold, “This means you might lose this land” (at [20]).
- Each signing page recommended independent legal, financial and tax advice (at [21] and [22]).
- Each guarantor had to engage a separate independent solicitor and sign in that solicitor’s presence (at [16]).
- An ASCF loans officer questioned each guarantor individually by Zoom about financial pressure, the sale of the property as the exit, and anything that might prevent a sale (at [17]).
- Each guarantor signed an Advice Declaration confirming they had obtained independent legal advice (at [24] and [25]).
The Court accepted that no legal advice was in fact given and the Advice Declarations were false (at [25]). That did not rescue the guarantors.
Finding 1: no special disadvantage, so no unconscionable conduct
To succeed in equity, the Patels had to show a “special disadvantage” in protecting their own interests, and that the lender was on notice of it (at [38]).
Mr Patel was tertiary educated and, on his own evidence, fully understood the terms, which were set out clearly and repeatedly in the documents (at [30]). Mrs Patel trusted her husband and did not want to know the details. A guarantor who chooses not to know is not under a disadvantage the doctrine protects (at [31]). Her “basic” written English made no difference; she answered the Zoom questions freely in English (at [33]).
Both knew the house would have to be sold if the expected contracts failed, and said so on the Zoom call and in the application (at [32] and [34]).
Nor was the absence of independent advice a disadvantage. The guarantors were urged to obtain advice, declared that they had, and the Zoom meeting gave ASCF direct assurance that they understood a deal that was “a very straightforward one” for two university graduates (at [36]). With $425,000 owed to friends and no other asset, their options were self-evident: borrow against the house, or lose it through bankruptcy or judgment (at [37]).
Just as importantly, ASCF was not on notice of any disadvantage: it had been told, falsely, that there was no financial pressure (at [38] and [39]).
Finding 2: interest rates are the “main subject matter” and cannot be unfair terms
The guarantors argued that the interest rates, fees and costs clause were unfair under sections 12BF and 12BG of the Australian Securities and Investments Commission Act 2001 (Cth). The lender accepted the loan was a standard form small business contract for a financial product, so the only issue was unfairness (at [42]).
Justice Fagan held that interest rate terms define the “main subject matter” of a finance company’s contract and are therefore excluded from the unfair terms regime by section 12BI. Interest charges are “the essential feature of contracts entered into by a finance business” (at [44]).
In any event the rates were not unfair. Because 12 months of interest at the discount rate was retained at settlement, 19.8% was the only rate the borrower would ever pay, and it was below the 20% Mr Patel was paying one friend (at [45]). The fees were not unfair (at [46]), and the costs clause was limited to “reasonable” costs, which on its own defeated the argument (at [47]).
Finding 3: the contract was not unjust under the Contracts Review Act
The guarantors also relied on section 7 of the Contracts Review Act 1980 (NSW). The Court found nothing unjust, taking into account Mr Patel’s knowledge, Mrs Patel’s decision to rely on him, and how Mr Patel had misled ASCF (at [48] and [49]).
ASCF was in the stronger financial position, but that is “simply typical of a borrowing transaction” and not enough on its own to make a contract unjust (at [50]). There was no evidence of any attempt to negotiate, and the rate was little different from what Mr Patel already paid (at [51]).
Finding 4: bridging finance is not “asset lending”
Mr Patel relied on Stubbings v Jams 2 Pty Ltd [2022] HCA 6, the High Court’s “asset lending” decision. Justice Fagan explained that Stubbings applies where the borrower lacks commercial understanding, the lender knows the borrower cannot repay from income or other assets, and default and loss of the property are inevitable (at [57]).
This case was “nothing like” that. The loan was expressly a bridging arrangement with a stated exit of selling the property, and the guarantors knew a sale would follow if it was not repaid (at [58]). A late penalty argument also failed: a standard rate and discount rate structure is typical and has repeatedly been held not to be a penalty (at [56]). The only misleading conduct was Mr Patel’s own (at [55]).
Practical lessons for private lenders
The decision does not change the law, but it shows which parts of a lender’s process a court will lean on when a guarantor cross-claims. Second mortgagees should:
- Build prominent warnings into the offer and loan documents, including that the guarantor may lose the property.
- Have each guarantor sign before a separate independent solicitor and sign an advice declaration.
- Interview each guarantor individually, on the record, about financial pressure, the exit strategy and any obstacle to a sale.
- Ask the financial pressure question in writing and again in the interview, and record the exit strategy in the application and the offer.
- Keep costs clauses tied to “reasonable” costs, and use a standard rate and discount rate structure for interest.
One caution. The “main subject matter” finding is a single judge decision, and the time for any appeal had not passed at the time of writing. Treat it as helpful rather than settled.
How Elton Law Group can help
Elton Law Group acts for private lenders and second mortgagees on loan documentation, guarantor verification and enforcement. To have your origination process reviewed against the findings in Patel, contact us.
This article is general information only and is not legal advice. It is based on the published judgment as at 10 September 2026. You should obtain advice on your own circumstances before acting.