WHAT TO CONSIDER WHEN BUYING A PROPERTY THROUGH MORTGAGEE SALE. ??
As interest rates continue to rise, New Zealand is starting to see an increase in 'mortgagee sales’. A mortgagee sale is when a borrower defaults on their mortgage, causing the lender (i.e. the mortgagee) to exercise a mortgagee sale and sell the property to recover their costs.?
For buyers, the upside to acquiring a home through a mortgagee sale is that you might be able to secure it for a cheaper price than if you bought it in the conventional way.?
However, cheaper doesn't necessarily mean easier.?
Here are some risks you will need to consider:
?? The home is being sold against the owner’s wishes, so the owner might refuse to let you view the property or conduct a building inspection. Furthermore, the lender doesn’t have to guarantee the property will be vacant, which means the owner might refuse to leave the home after settlement. If that happens, you will be forced to take steps to evict the owner.
?? The owner can repay their mortgage before settlement, and the property can be removed from the market at any time. This means that even once an auction has been won and the contract has been signed the sale can be called off.
?? The lender doesn't have to guarantee the quality of any chattels that are part of the sale or provide any warranties or supporting documentation for anything relating to the building, fixtures or fittings, so even if you can get to inspect a property subject to a mortgagee sale, there’s no guarantee that it will be in the same condition when it becomes yours.
Borrowing to Buy a Mortgagee Sale Property ??
Pre approval is essential when it comes to mortgagee sales.
Generally, the lender may add some special conditions to the loan to be able to accept the property as a suitable security.
There are a few risks that go with these purchases as mentioned above, so before settlement, any damage or destruction to the property can result in a loss for you. The lender will most likely want written confirmation from your solicitor that they have gone through each clause with you and that you are fully aware of the risks, legal requirements and complexities.? Additionally, they will require confirmation from the vendor’s solicitor that all caveats will be removed from the title before settlement.
This is where you really need to do your due diligence with your solicitor to make sure you can satisfy this condition.? Most of the time, the vendor's current lender is on the title of the property as the first mortgagee.? However, if the vendor has borrowed money from someone else to try and get out of their situation, the other party can register a second mortgage or caveat, ensuring that the owner of the property cannot sell without their consent.
So, before bidding on a mortgagee sale property, you need to be certain that the security arrangements on the title can be removed at settlement. Settlements can be held up if there isn't enough money, leaving you stuck with an unconditional contract and no idea when the actual settlement will be.?
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…and what if you’re the one facing a mortgagee sale on your property???
If you are a homeowner struggling financially, make sure that you get in touch with your bank or Mortgage Adviser as early as possible to come up with a proactive plan to manage your debt during this time.
Remember, mortgagee sales are the last resort for the bank to recover any monies owed, so it is in the interest of the bank to exhaust all options before it gets to that stage. Don’t bury your head in the sand, deal with the issue before it becomes unmanageable and a mortgagee sale becomes the only option.
Mortgagee sales can be costly, and it is often better to sell the property while you are in control, rather than take on the extra stresses and costs that always eventuate with a mortgagee sale.
??The key takeaway here is to proceed with care when it comes to mortgagee sales. It is even more important to do your due diligence, seek legal advice and understand the risks associated with the sale.?
If you require finance for the purchase make sure to talk with an experienced Mortgage Adviser so we can get the right pre approval in place for you.
Cheers, Stephen
??021 711 444
The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Stephen Massey and Loan Market shall not be liable or responsible for any information, omissions, or errors present. I recommend seeking professional legal and/or mortgage advice for your own personal situation. My Disclosure Statement is available here or on my website.