On July 10, 2024, the Reserve Bank maintained the Official Cash Rate (OCR) at 5.50% for the 8th consecutive time since May 2023. This high interest rate is causing financial strain on many households, leading to increased mortgage arrears and the potential for more mortgagee sales.
A mortgagee sale occurs when a mortgagee (lender) sells a property to recover a defaulted loan. This process can only be initiated if the borrower defaults under the loan agreement, which includes failing to repay the loan on time, missing interest payments, or not maintaining/insuring the secured property to the satisfaction of the mortgagee (lender).
Even if a default is established, the mortgagee (lender) must follow a specific process to exercise a mortgagee sale. The first step is for the lender to discuss the breach with the borrower to see if it can be rectified within an agreed timeframe. If no agreement is reached or the breach is not rectified, the mortgagee (lender) should issue a letter of demand outlining the breach, the amounts owed, and the due date.
If the issue remains unresolved, the mortgagee (lender) can then issue a Property Law Act (PLA) Notice under section 119 of the Property Law Act 2007. This notice requires the mortgagor (borrower) to rectify the default within at least 20 working days from the date the notice is served. It's important that the notice complies with the Act's requirements and is correctly served to avoid legal disputes. A PLA Notice can also be issued to a loan guarantor under section 122 of the Act.
If the mortgagor (borrower) fails to rectify the default by the specified date, the mortgagee (lender) can recover the loan amount, arrears, interest, and incurred costs. The mortgagee (lender) has two primary options – 1) appoint an agent to advertise the mortgagee sale and conduct a public auction or tender, or 2) appoint a Court Registrar for the sale. Legal advice is recommended to determine the best option for you. Either way, you have a duty to obtain the best price reasonably obtainable as at the time of sale.
The mortgagee sale process can be complex and time-consuming. It is strongly recommended that you obtain legal advice from the outset to protect your interests and recover the loan and costs incurred during the process. If you have any questions, please feel free to contact us.
Disclaimer:
We have taken care to ensure that the information given is accurate, however it is intended for general guidance only and it should not be relied upon in individual cases. Professional advice should always be sought before any decision or action is taken.