Mortgagors beware – you can run from a shortfall but you can’t hide

Rose and John bought their first home together with the help of a mortgage from the bank. They both worked at a shop in town. However the shop’s business decreased alarmingly during the recession and it was forced to close.

Rose and John both struggled to find new jobs and with only their savings to live on they could no longer meet their mortgage repayments. Unfortunately, they were served with a Default Notice.

If you are served with a Default Notice under the Property Law Act, you will usually be given a period of not less than 20 working days after receiving it to remedy your defaults. If you cannot do this, then, under the conditions of the mortgage, the Bank may sell your home.

Many people do not realise that if the proceeds from the sale of the house fall short of repaying the mortgage, then the Bank can still pursue you for the remaining sum. This means that, unfortunately, after the loss of your house, your trials may not be over.

The bank sold Rose and John’s house at a mortgagee sale. Their house sold for much less than expected and the proceeds from the sale didn’t cover all of their debt, and they were left owing the bank $10,000.

Both Rose and John assumed that because they had given up the security for their mortgage, their house, and let the bank sell it to repay their debt, their obligations as debtors had been fulfilled. However, this was not the case.

Because they still owed $10,000 the bank was legally entitled to pursue them for the remainder of the money, and did so. Banks include such terms and conditions in their mortgage agreements, and it is very important for potential and existing mortgagors to be aware of them. The bank demanded they repay the outstanding monies, and Rose and John had no option but to comply.

Their unfortunate plight serves as a warning to all mortgagors – you may be able to run from a mortgage shortfall, but you can’t hide.
To avoid bankruptcy it is important that debtors take steps to come to a reasonable arrangement with the bank to pay the balance off. If necessary seek help from a competent professional to negotiate with the bank.

For further information or advice on dealing with your creditors and protecting your assets call us on 0800 733 402.