A young couple had purchased their first home when interest rates were low, borrowing the maximum they were able to. The wife then got pregnant, which eventually meant their income decreased.  Understandably, they started having trouble making their mortgage repayments.

They defaulted on a number of repayments, and eventually received a notice from the bank saying it was going to be exercising its rights to sell the couple’s home at a mortgagee sale.  They took legal advice only after they received the notice.

The first thing you should do if you are stuck in this sort of situation is talk to your bank or other lender about your situation.  This will enable you to explore options for repayments with the lender, and keeps the lines of communication open. 

The options that the Bank or lender may consider include:

  • Changing the time and frequency of payments e.g. from fortnightly to monthly;
  • Extending the term of the mortgage so that you have smaller payments to make;
  • Changing some or all of the repayments to interest only, until your financial circumstances improve; or
  • Allowing you a mortgage repayment holiday.

There is also the option of refinancing to another lender, where terms may be more suitable to your circumstances, so it pays to explore all options.

We would also recommend contacting a financial advisor as soon as possible when your circumstances change significantly.

Of course there is no guarantee that your Bank or lender will offer any of the options outlined above, especially if they think that your inability to service the loan is likely to be long term.

Before any action can be taken, the bank/lender (mortgagee) must serve on you a default notice under the Property Law Act.  This notice is required to outline the missed payments/defaults and note exactly what the arrears are, including any penalties.  The notice will usually give you a period of not less than 20 working days to remedy the defaults after your receive it. 

If you cannot remedy the defaults you should immediately discuss this with your lender, and if they are not able to assist, a solicitor.  You solicitor may be able to negotiate an arrangement on your behalf.

In the end if you cannot reach any arrangements with the bank, there will come a time when the Bank or lender will be forced to sell your home.  After all, the purpose of the mortgage is to give the Bank security over your home so that if you cannot pay the mortgage, the Bank or lender can sell it to recover their money. This is a basic part of what you agreed to in the documents you signed when you took out the loan.

Most banks or lenders would prefer for the owner to organise the sale rather than have to force a mortgagee sale, as it costs them time and money to organise these. 

We recommend you do not leave it too late to consider this option of selling yourself.  You can generally get a better sale price if you sell yourself, as mortgagee sales are often seen as ‘fire sales’ because access often can’t be given for viewing, and/or chattels will be missing. 

In summary, do not ignore a default notice!  Receiving a Property Law Act Notice/Default Notice can be a very stressful time.  The best thing to do is act quickly to speak to your lender, and get some professional advice if required.

If you are struggling to pay your mortgage speak to your bank or financial advisor as early as possible so you can consider your options.