Mortgage sales NZ: What buyers need to know

A mortgagee sale is when a homeowner can’t (or won’t) make their mortgage payments and the lender is forced to sell the property to recoup what they’re owed. They work a bit differently than regular sales with fewer protections for buyers and potentially more hassles involved too.

Mortgagee sales reflect poorly on banks so they tend to try to only use them as a last resort - allowing homeowners to defer payments, or sell the home themselves first. This means that mortgagee sale home owners have sometimes had a disagreement with their bank or become unresponsive.

• Sale and purchase agreements are weighed in the bank’s favour because there are several uncertainties they want to protect themselves from. Banks may be unwilling to negotiate terms.
• Banks are unable to provide vendor warranties because they usually have limited knowledge of the home.
• The bank may be able to withdraw at any time before settlement day if the owner pays their debt.
• Chattels and the condition of the home are not guaranteed. Homeowners may take light fittings, curtains and other chattels, or damage the property before leaving.
• Buyers are sometimes responsible for outstanding costs like rates, body corp, and other unpaid fees.
• The property may not be accessible for viewing meaning you may only be able to see it from the kerbside.
• Vendors don’t guarantee vacant possession which means it might be your responsibility to move the homeowner on.
• As soon as you go unconditional you may be responsible for the property, meaning any and all damages and insurances will be covered by you.
• All the uncertainty due to the above points means buyers are faced with a higher level of risk and need to undertake detailed due diligence (and even with due diligence things can go wrong).

Due diligence is important when buying any property - but when buying at a mortgage sale it’s vital. The fact is, the only thing that can protect you is learning as much as possible about the property, the sale and purchase agreement, the circumstances of the sale, and the homeowners.

When buying a home via mortgagee sale buyers should consider:

• A LIM report checked by a solicitor.
• Title check with solicitor to ensure no debts or encumbrances are held against the property.
• Sale and purchase agreement checked and explained by a solicitor. Watch out for clauses that allow settlement to be cancelled if the homeowner repays their debt.
• A detailed builder’s report if possible.
• A valuation report and research on the property’s value to ensure it’s worth the risk.
• Checking property against council records to ensure any changes have appropriate consents and code compliance.
• Getting insurance as soon as your offer is accepted - and advising the insurer that this is a mortgagee sale.
• Asking the real estate agent about the circumstances of the mortgagee sale, and the homeowner’s occupation. Look out for red flags like the homeowner refusing to leave.

Usually if you asked questions of the vendors they would be required to answer and provide guarantees that their claims are correct. But this is often not the case with mortgage sales.

To make sure you understand all the risks your solicitor should be your best friend. Ask them if you should be aware of anything about the sale and purchase, the title, the LIM, or any other documents. Make sure you understand all the risks.

Be prepared for there to be some damage to the property and perhaps no chattels at all (light fittings, curtains, kitchen appliances, etc). Put aside some funds to replace these and repair the home if necessary.