The Sullivans and the executor of Ms Clark's estate Gary Clark have sued Pepper Money in the Federal Court seeking to overturn the loan and prevent the sale of their property.

They claim the lender breached its obligations under the credit code and failed to take reasonable steps to learn whether the Sullivans and Ms Clark could have repaid the loan without financial difficulty.

Ms Clark passed away after unwittingly signing up as surety for the loan, court documents say.

"The loan caused emotional distress, limited her options including her access to health care and blighted the last years of her life," the family wrote in a concise statement filed with the Federal Court.

They are running the case themselves and do not appear to have hired a lawyer.

In assessing the loan's suitability, Pepper Money is accused of failing to ask Ms Clark for any financial documentation or obtaining the Sullivans' income from their tax returns.

As well as being unsuitable, the mortgage was unjust because it, among other things, obtained a guarantee from an 89-year-old woman "by stealth," court documents say.

"As a result of the contraventions, the applicants have lost significant amounts of money and remain at risk of losing their home," the family wrote.

"The applicants are vulnerable and continue to suffer ongoing financial hardship."

The family are seeking orders setting aside the allegedly void, null and invalid mortgage.

Alternatively, they are seeking orders which reduce the amount they have to repay.

In June, Pepper Money promised to the Federal Court that it would not seize or sell the Sydney property until the conclusion of the lawsuit.

The lender is also seeking to transfer the matter to the NSW Supreme Court and a hearing for this bid has been scheduled for August 6.

Pepper Money and the Sullivans have not responded to a request for comment.