Sally was very excited to be the successful bidder at an auction for a mortgagee sale property. She had looked at and approved the LIM report and builders report for the property and had ticked all the boxes in terms of investigating the property before going to the auction.

However, once the signed Agreement for Sale and Purchase was sent to her lawyer, her lawyer pointed out to her that the usual clause in the Agreement confirming that the property would be at the (insurance) risk of the vendor (or seller) until settlement had been deleted, as is often the case in mortgagee sales. This meant that the insurance risk for the property became Sally’s from the date of signing of the Agreement!

It transpired that the property was not insured as the owner had not been able to keep up with payment of premiums. Sally found it impossible to get insurance before settlement as insurance companies were concerned that the current disgruntled owner who was being forced to sell was still in the property and that the property was likely to be damaged by that owner. Sally had to hope that the property wouldn’t be damaged (or burnt down!) before settlement which was two weeks later.

When buying at a mortgagee sale, it is important to have a lawyer review the documentation BEFORE you go to auction. In situations like the above, insurance companies will often agree to insure if there is a term included in the agreement confirming that the property is at the risk of the purchasers from the date of the Agreement. The other option is to make the settlement date as soon as possible after signing the Agreement.