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 Australian 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.

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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.

- This article originally appeared on News.com.au and has been republished with permission.