About 40 per cent don't know their interest rate, and that's only one mistake they're making when it comes to mortgages. So what are some other mortgage mistakes you might be making?

EXCLUSIVE

A lawyer’s handwritten note accidentally results in the bank handing an elderly couple back the keys to their home.

It sounds like something out of The Castle, but unfortunately for Central Coast retirees Guy and Eunice Wernhard, there will be no fairytale ending or trips to Bonnie Doon after losing a Darryl Kerrigan-like court battle with Citigroup on Friday.

They now say they will be forced to pay “at least two thirds” of their pension in mortgage repayments as a result of the decision in the case, which stems from a monumental stuff-up on behalf of Citigroup’s lawyers in 2012.

Through an administrative error, the Wernhards were released from three mortgages — one over their family home and two over investment properties — while they still owed half a million dollars to the bank.

While that may sound like a stroke of luck, Mr Wernhard insists it wasn’t.

“It was a terrible thing,” the 66-year-old said in a phone interview Wednesday.

“My solicitor was absolutely horrified. He said, ‘Do you know how many people this has got to go through to get them to release this sort of stuff?’ I looked at this and thought, ‘Oh my god. Trying to sort this out is going to be ridiculous.’”

Mr Wernhard said he wanted to inform Citigroup straight away but claimed he was advised by his solicitor to “wait until they find out for themselves — then the s**t will hit the fan”.

In addition to their home at Watanobbi on the Central Coast, the Wernhards owned two investment properties, one in South Tamworth and another in the Hunter Valley town of Raymond Terrace.

In 2005, they had used all three properties as security for two loans totalling just over $500,000.

Citigroup’s “costly mistake”, as NSW Supreme Court Judge John Slattery described it, occurred when the Wernhards requested a discharge of the Raymond Terrace mortgage so they could sell the property.

The bank’s lawyers, Galilee Solicitors in Sydney, appointed Tamworth-based McMahon Broadhurst Glynn Solicitors to be their agents for settlement. On July 9, 2012, Galilee sent a letter to McMahon Broadhurst Glynn.

The original typed portion of the letter indicated the firm was enclosing mortgages and discharges of mortgage for the Raymond Terrace property.

But then in handwriting, someone had added that the mortgages and discharges of mortgage for the South Tamworth and Watanobbi properties were also being enclosed.

“Whoever added these other documents in handwriting — and presumably enclosed them — made a mistake,” Judge Slattery said. “Once that error was made, it was carried through to the settlement itself.”

Citigroup didn’t realise its mistake for four years, during which time the Wernhards sold their now-unencumbered South Tamworth property.

They applied the proceeds “without Citigroup’s prior consent and other than in immediate discharge of their loan obligations to Citigroup”, the court found.

They had used the $190,000 from the Raymond Terrace sale to pay down some of the loan, but still had just under $310,000 outstanding.

The bank finally realised what had happened in September 2016 and demanded reinstatement of its security. The Wernhards refused to re-execute a mortgage and hand back the title to their home.

“The first phone call we got from the bank was from Mills Oakley solicitors, they had a senior partner ring us,” Mr Wernhard said.

“He said, ‘Mr Wernhard, I represent Citigroup. They are claiming that, because of a mistake they made back when you sold your property, you now have to re-enter a mortgage. Do you have a solicitor please?’ I said, ‘No I’m a pensioner, I don’t have a solicitor.’ He said, ‘Well you’re going to need one.’”

Citigroup took legal action, alleging the couple had acted “unconscionably”.

Judge Slattery last week upheld Citigroup’s pursuit of its “equitable rights”, ordering reinstatement of the mortgage over the Watanobbi home and awarding costs to the bank.

He found the Wernhards had sold the second property “contrary to good conscience”.

He also dismissed a cross-claim from the couple alleging they had suffered loss and damage as a result of Citigroup’s failure to consider their requests to consolidate their loans.

“All of Citigroup’s legal rights under the mortgages were brought to an end when the discharges of mortgage were handed over and then registered in July 2012,” Judge Slattery said.

“Citigroup has presently no subsisting legal right under the mortgages to recover the certificates of title. Citigroup is therefore thrown back upon its equitable rights.”

The bank’s claim was “based on the doctrines of unilateral mistake”, by which it had to establish that the Wernhards “knew or had reason to know of the mistake in question”.

Under the law there is “well established jurisdiction to recover money and other assets paid or transferred by mistake”, in any case where “it would be unconscientious for a person to avail themselves of the legal advantage they have obtained through the mistake”.

At one point during the hearing, where the couple represented themselves, Judge Slattery asked Mr Wernhard whether he agreed Citigroup had “made a mistake by giving you three (titles) and not just one”.

“Absolutely, your Honour,” Mr Wernhard said. The judge asked, “Why don’t you just give it back and the case will be over?” Mr Wernhard replied, “Because we can’t afford to give it back, your Honour.”

Mr Wernhard, who runs the Central Coast Community Shed, said on Wednesday that by that point the couple were $30,000 in debt and had spent all of their savings to keep the shed open.

He said that in 2016, after the mistake was discovered, Citigroup froze their other accounts in retaliation, putting them in financial hardship.

They will now be forced to shut down their disability equipment supply business, affecting up to 350 people in the local community.

“I don’t like being bullied,” he said. “To my way of thinking, and I know it wasn’t accepted by the judge, I took all of this as being bullied.”

The British Army veteran said he had calculated that “whatever happens now, we are going to be paying at least two thirds of our pension in mortgage”.

“I’m going to have to go back to work,” he said.

“At no time has the bank done its due diligence here. It took over (four) years to figure out it made a mistake. But they didn’t come back and say, ‘Let’s sit down, we’ll do some due diligence, find out how much this is going to cost and we’ll try to assess it where we don’t put you under undue stress.’”

He added the “major problem” with banks was it was always about “can we” rather than “should we”. “Can we do this, can we get away with it?” he said.

“As soon as something goes wrong they lawyer up, and that means that the people like ourselves, in the street, we can’t get at them. They’re in their glass towers down in the city.”

Citigroup declined to comment for this story.

Michael Lalji, national manager for insolvency and commercial litigation at Shine Lawyers, said Citigroup would “almost certainly” take action against the solicitors acting for the bank at the time.

“This is a very substantial mistake that appears to have been difficult and costly for Citigroup to try to correct,” he said.

In part because of the solicitor’s mistake, Citigroup had lost the security it had over two properties and incurred substantial legal costs to try to rectify the mistake, he said, which the couple may not be able to pay.

“The solicitors may well be up for a significant sum because there’s every chance the couple doesn’t have anything else to satisfy the amounts owing to Citigroup, including the cost order made against the couple,” Mr Lalji said.

“Presumably the only asset the couple still own is the remaining property, and that’s probably already underwater, so Citigroup is left holding the bag. In that case Citigroup’s only option to recover its loss will be to go after the solicitors who made the mistake.”

On the other hand, he added, the solicitors “may argue that Citigroup failed to mitigate its own loss by, remarkably, not taking any action until four years later”.

frank.chung@news.com.au