A young couple decided to buy a property at a mortgagee sale, as the reserve price at auction was very attractive to them. 

They wanted to get into the property market using some inheritance money they had received,

Although they were not allowed in the property to view it properly because the owner was angry and uncooperative, they decided to bid at the auction, and succeeded.

When it came to the settlement date, after some initial issues with removing the owner, they were able to finally enter the property to check its condition. 

They ended up having to pay for a completely new kitchen as the owner had done a large amount of damage, including having ripped out the oven and dishwasher and taken them with them (no doubt out of spite for being forced to sell by their mortgagee lender).

A mortgagee sale occurs when a home owner defaults on their home loan repayments, and their lender ultimately exercises their right to sell the property.

While properties being sold at mortgagee sale may seem like a bargain, there are a number of issues to look out for.

Vacant possession

Typically the mortgagee will not agree in the Agreement for Sale and Purchase to give you vacant possession.   Therefore there is no guarantee that you will receive vacant possession (ie: that the owner will have vacated the property).

If the property is tenanted, you will inherit the tenancy agreement and be subject to its terms and conditions.

If the owner is still occupying the property they may not want to leave. This could result in you having to apply to the Court for a possession order.

Inspection of property

You may not be able to inspect the inside of a property if the outgoing owner is uncooperative.  This can lead to nasty surprises later.

No disclosure and no chattels

Additionally, the owner is not under any obligation to disclose issues with the property (unlike in a ‘normal’ sale). There will also generally be no chattels included in the sale, so mortgagee sales are conducted on an ‘as is’ basis. It is therefore not guaranteed that the inside of the property will be in a good and liveable condition.

There is also no obligation on the mortgagee to provide building reports, Code Compliance Certificates, or warranties, so you need to do as much due diligence as possible about these aspects.

Obtaining finance

Due to the lack of disclosure and transparency around properties subject to mortgagee sales, you may face difficulty in obtaining finance from your Bank. Banks want to know what they’re lending on, and if there’s little disclosure the Bank may regard the lending as too much of a risk.

In conclusion, you will need to take extra steps in obtaining information about a property being sold at a mortgagee sale as these purchases carry a high degree of risk.

It pays to obtain advice from a legal professional so that you don’t get caught out in trying to take advantage of what may seem like a bargain purchase.

 

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Laurie Pallett and Hanifa Kodirova

Associate/Registered Legal Executive and Law Clerk
Wellington