(a) Rosario and Domenica
295RAMS had a number of items of information that ought to have put them on notice at least to make further enquiries before going ahead with the loan.
296First, they knew that Rosario was aged 70 years and that Domenica was aged almost 68 years. Yet they were approving a 30 year loan. They were told that each was a self-employed investor in what was apparently a restaurant. Although the first form of the loan applications sent through to them included the name of Jencon Pty Ltd and that company's ABN, when RAMS asked for any reference to Jencon to be removed they were not provided with, and did not ask for, an ABN for Rosario and Domenica. The email on the application's status tracking document of 16 September 2005 at 12:21pm to Mr Famularo said that the CRAA was not showing a directorship for Rosario and Domenica. The email then said:
We will require either a consent from the company to perform the CRAA enquiry, or a driver's licence reference.
It is not clear why a consent from the company to perform a CRAA enquiry was needed nor what the relevance of a driver's licence reference could be. Nobody gave evidence from the Plaintiff to explain that.
297The file note that followed that entry on the application status tracking said:
Peter will be amending the A&L and self cert to reflect the true nature of the applicant's employment.
In fact the only amendment made was that any reference to Jencon was removed. Jencon was never shown to be the employer of Rosario and Domenica. The A&L and self cert was not in fact amended with anything to do with their employment. On the assumption that "A&L" stands for assets and liabilities, it is not clear why amending that would have anything to do with the applicant's employment. Nobody from RHG was called to explain that.
298However, although no amendment was made by Mr Famularo to reflect the true nature of the applicants' employment no further enquiry about the matter was made by Mr Anderson. If the matter was a concern, as Mr Anderson's email reproduced in the Application Status Tracking document indicated that it was, an explanation was called for when no alteration was made about their employment. I can infer that Mr Anderson's evidence would not have assisted the Plaintiff. Without an explanation the position is left that a significant matter was left unclarified by RHG.
299The Plaintiff submitted that Mr Anderson had never required clarification of the true nature of the applicants' employment. Rather, his concern was having the difficulty with a CRAA search resolved. However, the fact that Mr Anderson made the note about what Mr Famularo was going to do points to its significance for Mr Anderson. The matter at least required an explanation from Mr Anderson: Jones v Dunkel at 321.
300The matter has further significance because in the summary document reproduced at [64] Mr Anderson said:
Both applicants are investors - and own an income producing restaurant in Sydney which generates their income.
When Mr Famularo had never clarified the applicants' employment position it is difficult to see how Mr Anderson could assert that an income producing restaurant generated their income. Mr Anderson may have inferred that from the reference to Fiorannis restaurant on the loan application but in the absence of evidence from him it is not clear how he could make the statement to Genworth set out.
301That matter is connected with a further incorrect statement that Mr Anderson made in the document at [68]. The statement was that there were no irregularities with the CRAA enquiry. In his email to Mr Famularo Mr Anderson said:
CRAA are not showing directorship. We will require either a consent from the company to perform a CRAA enquiry, or a drivers licence reference.
The matter was never cleared up as noted above because Mr Famularo never amended "the A&L and self cert to reflect the true nature" of their employment. Mr Anderson did not give evidence to explain the incorrect statement.
302Secondly, although this was a Low Doc loan, RAMS did not follow its own guidelines in a number of respects. Page 24 of the guidelines defined a "self-employed borrower" as:
A borrower who has a registered Australian Business Number
OR
A borrower whose base PAYG income is exceeded by income from other sources (i.e. rental income, distributions, investments, dividends etc).
303In the case of Rosario and Domenica they must have fallen into the former category because the only income they were said to have was the wage or salary they were obtaining from the restaurant. Despite this, and despite the removal of Jencon with its ABN, RAMS never asked for Rosario and Domenica's ABNs. If RAMS had asked they would have found that both Rosario and Domenica were not self-employed investors at all. In those circumstances, the absence of tax returns or proof of earnings from the restaurant, the loan would not have gone ahead.
304Page 28 of the guidelines defines "self-employed evidence" as:
Tax returns for the most recent two financial years, together with applicable tax assessment notices to be obtained.
305Page 41 of the guidelines stipulated that in the case of loans involving Genworth (which these loans did) if they were greater than $750,000, full traditional income evidence was required. As noted, no tax returns or other documents demonstrating the stated employment or earnings were required. Again, if such documents had been required it would have been readily ascertained that the stated employment was false and that Rosario, Domenica and Mrs Baira had no capacity to service the loans. Because that was in fact the case the effect of the loan agreements was pure asset lending.
306Putting aside the supposed arrangements between Joe on the one hand and the borrowers on the other whereby Joe and/or Jencon would be paying the loans, on the assumption that RAMS knew nothing about such arrangements, the only way RAMS would be repaid the money it was lending was by the sale of the Drummoyne and Marrickville properties. If on the other hand, RAMS did know that these loans were really only for the benefit of Joe, Sandra and Jencon and that they would be making the loan repayments, there were third party issues for RAMS to consider, contrary to what Mr Anderson said in his Loan Summary of 16 February 2006.
307In the RAMS Home Loans Settlements Policy and Procedure (Exhibit 9) the following appears:
6. Sub Process #2 - Pre-Settlement Call
6.1 Description
A Pre-Settlement call is made to the borrowers to outline the ongoing Settlement process and to provide the customer with a contact point, should they require to contact RAMS re their Settlement. During this call, it has become an opportunity to validate the information held on file in relation to their personal details along with their chosen product, loan requirements and payment options....
The Pre-Settlement call is made by the Settlement officers, after all file information has been checked and verified. This allows the operator an opportunity to capture or clarify missing information, or requirements, that can be requested at the time of the call.
308No such call was made. If it had been the true position would have been disclosed and the loan would never have gone ahead.
309Thirdly, when the valuation came in below what had been put forward to RAMS the maximum loan RAMS was prepared to make was $910,000. Although Mr Famularo sent a fax to RAMS on 28 September saying that amount was acceptable, RAMS was thereby put on notice by the information that they already had that the loan would not be able to be used for the purposes that had been identified. Those purposes were to purchase property for $500,000 (and RAMS had seen the sham contract cover for that amount) and refinancing of $490,000. The Statement of Liabilities on the Loan Application disclosed a figure owing to St George of $486,035. The bank statements forwarded with the application showed the same final figure.
310Even if the $1,000,000 had been available it is difficult to understand how those two purposes could have been achieved. The $1,000,000 included only $10,000 for costs. Stamp duty and costs would have exceeded that amount. With the maximum loan amount being reduced by $90,000 RAMS ought to have considered how the loan could go forward when the statement of assets and liabilities showed only house contents worth $50,000, the deposit already paid of $50,000 and an intangible of $1,000,000 for business good will.
311Fourthly, RAMS knew from the sham contract cover that the property being purchased was said not be part of the security for the loan being sought. That was unusual because it strongly suggested that the property was not being purchased as an investment property. The tax benefits that would have flowed from using that property as security for a loan made that clear. In turn, that suggested that the new property would not be producing income to assist in meeting the loan commitments. RAMS also knew from the loan application that Rosario and Domenica had lived at the Drummoyne property for 35 years.
312Yet on the summary of 20 September 2005 sent by Mr Anderson to Genworth Mr Anderson wrote "Purchase an investment property (front page COS attached)". Nothing on the loan application or in the documents submitted to RAMS suggested that what was being purchased was an investment property. Mr Anderson was not called to explain that discrepancy, and an explanation was required. Saying that the property being purchased was an investment property created an impression that there would be an additional source of income to service the loan.
313The reason put forward for Mr Anderson's not being called was said in the Plaintiff's written submissions in reply to be,
based on the pleadings and evidence filed and more specifically on the fact that no allegations against the employees of RHG Home Loans required any positive evidence (beyond that shown in the contemporaneous documents.)
However, paragraph 18 of the Iannis' Cross-Claim clearly identified the assertion of Rosario and Domenica purchasing an investment property, and that RAMS sated to Genworth that certain matters had been verified by RAMS when that was not the case. Other matters were also specified that called for an explanation from Mr Anderson or other relevant persons at RAMS.
314This matter highlights a further consideration from the problem arising from the lower than expected valuation and the shortfall in the loan. An obvious way that the original loan could have been obtained was to offer the property being purchased as security also. It does not appear that such a suggestion was made by Mr Anderson or by anyone else at RAMS. Of course, they were under no obligation to do so. However, the failure to mention it left the position, as I have said, that the original purposes of the loan could not go forward because the funds available were insufficient.
315Further, Mr Anderson's email of 27 September 2005 to Mr Famularo reporting on the lower loan amount says this:
Hi Peter, Please advise if max loan of $910,000 is acceptable, as val has come in at $1.3M. Alternatively incoem (sic) and A&L can be provided to apply for $1M. Comparable sales evidence must be provided to go back to the valuer about the val amount.
On its face, that suggests that Mr Anderson was implying that the assets and liability figures could be altered to justify a loan of $1 million. That would be a deliberate attempt to circumvent the guidelines. That statement cries out for an explanation. None was forthcoming in the evidence.
316Fifthly, on the revised identification documents sent through Domenica's points did not add up to 105 as the document asserted. This appears to have been overlooked entirely by anyone from RAMS.
317Sixthly, the evidence satisfies me that the water rates notice was forwarded to RAMS. There were two missing pages from the 11 page fax sent by Mr Famularo on 16 September. Although the original of that fax and its annexures were required to be produced by RAMS, RAMS was not able to do so.
318In his affidavit of 23 November 2009 Mr Famularo said that he sent to RAMS the loan application and the supporting documentation, amongst which he listed the Sydney Water bill. In his oral evidence before me, he first said that he did not think he sent the water rates document but then he said he thought that he did because it was his practice to send in the supporting identification material. When he first faxed the material to RAMS he included the council rates notice which he had relied upon for 35 points. When he was not able to get proof of the passport details he had been given he relied instead on the water rates notice. He amended the identification form accordingly. It was true, as he said, that he sent the supporting identification material in the first fax. That tends to support his statement that he would have sent the water rates with the second fax.
319In the proceedings before Grove AJ Mr Famularo was asked if the fax that he sent to RAMS consisted first of pages 362-371 in the court book (that is the loan application document itself) as well as the other material on pages 357-361 of the court book. Page 360 is the water rates document. He agreed that he did.
320In the Application Status Tracking document Mr Conway records on 29 September:
Address cross ref against rates notice. 100 points held on file.
It may be accepted that this note is ambiguous as to the identity of which rates notice. However, that note means that one of the rates notices was on the file. When the statement goes on to say "100 points held on file", that suggests that all the supporting material was with RAMS. In any event, the note is sufficiently cryptic to require an explanation, given that the reference to "pensioner rebate" on the water rates was an issue, and Mr Famularo had given evidence before Grove AJ (as noted above) and in his affidavit that the pages sent to RAMS included CB 360 which was the water rates.
321Nobody was called by RAMS to give evidence in order to establish that they did not receive the water rates notice. Where prima facie evidence exists that it was sent, I can draw a Jones v Dunkel inference that any evidence from RAMS would not have assisted them in that regard. The result of that is, when taken with the prima facie evidence, that I can comfortably infer that the water rates notice was sent to RAMS.
322That water rates notice showed clearly that Rosario and Domenica were entitled to a pensioner rebate. That was entirely inconsistent with their being self-employed investors earning the large amounts of money that the loan application identified. RAMS made no enquiry about that inconsistency. If they had, they would have ascertained that Rosario and Domenica were indeed pensioners with no ability to service the loan. In those circumstances, the loan would not have proceeded.
323Seventhly, on the Application Summary, apparently dated 29 September 2005 and prepared by Steve Conway, the following appears:
Purpose of Loan: $490,000.00 to Refinance
$420,000.00 to Equity Release
The same changed purpose appears on a separate document called "Loan Summary" of the same date. That latter document added this:
A Borrower is likely to receive an income tax deduction in respect of at least 50% of the total interest payable on the amount proposed to be borrowed.
That statement is difficult to understand since by this time, it seems, the purpose of the loan to purchase a property had changed. The only basis for a tax deduction on the interest (and it would have been the whole interest) would have been if an investment property was being purchased.
324There is no explanation why the purpose of the loan was changed but it is clear that this happened after the loan was reduced. Nothing in the documents forwarded to RAMS indicates a change in the purpose. A possible explanation is that there needed to be some justification for the loan that could not be explained by the prior stated purposes. This change of purpose, coupled with how the reduction in the loan amount could be reconciled with the continuing purchase of Wildthorn Avenue, required an explanation from Mr Anderson and/or Mr Conway. I infer that their evidence would not have assisted the Plaintiff's case that it was not on notice of any matter that need to be explained to it.
325Eighthly, in the same document the following appears:
Loan Size LVR LVR is outside of RAMS guidelines. Maximum LVR for Self-Certified - Low Doc loans up to $1000000 for METRO NSW (Non Vacant Land) is 65%. (Requested LVR is 70%)
Overriding Comments: Loan manually assessed by GE
Again, no-one from the Plaintiff gave evidence to explain what circumstances justified the overriding of the guidelines in this case. I can infer such evidence would not have assisted the Plaintiff.
326The same document also said:
Loan Size LVR Maximum loan amount for Sel Certification Equity Release where LVR> 65% is $250,000 with no stated use for funds
Overriding Comments: Held
It is not apparent what "Held" means. However, by this stage there was no stated use for $420,000 of the funds. The LVR exceeded 65%. Since the loan went ahead it may be inferred that the guidelines were either not followed or were manually overridden with no explanation being offered.
327Ninthly, on 11 October 2005 Lands Legal sent to National Lending Solutions, said to be in the Loan Agreement to be the solicitors for RAMS, the various documents executed by Rosario and Domenica. Amongst the documents was a Direction to Pay. It identified an amount of $10,933.25 for fees and charges payable under the loan agreement, a fee of $77.25 for a Discharge of Mortgage and then stipulated "Balance as directed by Phillips Fox Lawyers". Somewhat inconsistently, the letter from Lands Legal concluded by saying:
The balance of the settlement monies are to be paid to St George Bank Limited
328Ultimately, on 12 October 2005, a letter from Phillips Fox directed that $898,989.50 be paid to St George.
329Since the Loan Application had identified Phillips Fox as the applicants' solicitors, someone at RAMS ought to have wondered (1) why Lands Legal had arranged for the execution of the documents, (2) why Phillips Fox was to direct the balance of the funds in those circumstances, but in any event why there were, seemingly, conflicting directions about the balance of the funds, and (3) most particularly, why the whole balance was to be paid to St George when the loan application and bank statements had shown only a figure of $486,035 in circumstances where initially $500,000 was needed to purchase the property that had to be settled by 14 October 2005 and subsequently $420,000 was being borrowed for equity release.
330Nobody was called from the Plaintiff to explain the anomalies associated with the disbursement of funds. An inference is open on the material that RAMS knew that the purpose of the borrowing was not the purchase identified and that some other person's loan accounts with St George were being paid out since the only liability disclosed to RAMS in the loan application was the one account of $486,035.
331Tenthly, amongst the documents sent by Lands Legal to National Lending Solutions was a document headed "Warranty". This was a document chiefly about the property being mortgaged dealing with defects, disputes, notices and rates. At the end of each question either "Yes" or "No" was to be circled. Initially Mr Wennerbom circled "Yes " for every question except the one asking whether the mortgagor had ever been made bankrupt. He realised that he had made an error and then proceeded to circle "No" for every answer. That resulted in a "No" to the question, "Is the property your principal place of residence?"
332There was no evidence that this was noticed by anyone from RAMS. It was inconsistent with what had appeared in the loan application. On the basis that the loan purpose had changed because the applicants were no longer purchasing 7 Wildthorn Avenue, the answer called for an explanation. I can infer that evidence about this matter, in terms of what RAMS knew or understood, would not have assisted the Plaintiff.
333Finally, two of the other documents returned by Lands Legal were statutory declarations by each of Rosario and Domenica swearing they could repay the loan without substantial hardship. Although each declaration contained a handwritten "x" where it might be expected that the deponent's occupation would be stated, nothing was inserted. When it is remembered that Mr Famularo never clarified the true nature of the applicants' employment, the failure to notice these omissions (if failure it was) was significant. Had an enquiry been made the whole problem would have been exposed and the loan would not have proceeded. If in fact the omission was noticed but ignored, that was a singular failure that might have averted the making of the loan on the false basis it was made. I can only infer that evidence from employees of the Plaintiff about this would not have assisted the Plaintiff.
334 Despite RAMS having no tax returns or other financial material from Rosario and Domenica, no enquiry was ever made of Mr Lo Surdo who was identified as their accountant. If he had been rung, the little he could have told RAMS would have required a great deal more enquiry and would likely have meant that the loan would not proceed.