Mortgagee sales

Mortgagee sales can be a stressful process for all parties, and we hear about the things that often go wrong. You can find more guidance here to help you work in the mortgagee’s best interests while being sensitive to the owner’s situation.

Mortgagee sales often occur when a property owner can’t meet their mortgage repayment obligations. The mortgagee (usually a bank) may have to sell the property in order to recover the funds. Mortgagee sales are difficult – the owner of the property may be losing their family home, and this can create difficulties for both licensees and buyers to navigate along the way.

1. Be clear who you are working for and what their instructions are

When you’re selling a property by mortgagee sale, be clear that the mortgagee is your client. They will decide how the property is marketed, what sale process is followed and what the reserve price at auction will be.

Owners often feel they should have some say over how the property is marketed – for example, the use of the term ‘mortgagee sale’ is often an issue for owners because of the stigma associated with it. While you can relay their views back to your client and your client may consider these views to maintain a relationship with the owner, the mortgagee has the final decision.

Follow the mortgagee’s instructions, and make sure to get these in writing.

2. Agree on a communication plan between the owner and mortgagee

One of the main concerns from owners is that they feel that the licensee working for the mortgagee isn’t trying to get the best possible price for the property.

Talk to the mortgagee early in the process about what information you can share with the owner. The more transparent you’re able to be with the owner and the more you’re able to keep them updated, the less likely they are to feel it was an unfair process. Help your client understand the value of good communication in the sale process and in their relationship with the owner.

3. Agree on a communication plan with any other agency involved

In some cases, the owner may try to sell the property at the same time as the mortgagee sale process. If you’re in this situation, try to get the mortgagee to agree to a communication plan with the other agency. Whether your client is the owner or the mortgagee, you’re likely to get a better outcome for all parties if you’re able to talk to the other agent about interested parties and potential viewings and, most importantly, avoid multiple offers being accepted at the same time.

4. Explain the potential issues to buyers

Mortgagee sales generally have different terms and conditions to non-mortgagee sales, which you should clearly explain to potential buyers. Often in mortgagee sales:

  • the property is not accessible for viewing beforehand and is often sold based on kerbside viewing
  • the property is not offered for sale with vacant possession
  • the chattels are not included in the sale and the property is sold in an ‘as is’ condition
  • there are no warranties to the new owners on the condition of the property and the mortgagee is not liable for any damage made to the property
  • the property may not be insured by the mortgagee after signing the sale and purchase agreement
  • the mortgagee is not required to supply property inspection reports or disclose unapproved construction work, provide information about building consents or code compliance certificates or provide clarity around boundaries relating to the property.

Sometimes, successful buyers may also be liable for any outstanding rates, body corporate fees or other payments. You should refer to the sale and purchase agreement for sale conditions to find out whether there are any outstanding payments and encourage potential buyers to do their research on the property, including seeking legal advice.

Full details of sale conditions are usually found in the sale and purchase agreement and associated documentation, for example, auction particulars and conditions of sale or tender documents. Licensees should ensure they are familiar with the terms and conditions of the sale.

These terms and conditions are often outside of the buyer’s control. We recommend you clearly explain them to potential buyers and encourage them to speak to a lawyer before bidding at auction or signing a sale and purchase agreement. It’s a good idea to also put this in writing once you have done this.

Read guidance for buyers about mortgagee sales

5. Apply all normal rules

In terms of the rules and Act, a mortgagee sale is just like any other sale. The mortgagee is your client, and you have a fiduciary duty to act in their best interests. All other rules and sections of the Act will apply as usual – for example, treating all parties fairly and providing the mortgagee with an appraisal.

In terms of disclosure, it may be more challenging to find out information about the property if you’re not able to access the property, but you still have the same obligations to disclose any defects you are aware of.

Conflict of interest principles also apply to mortgagee sales.

In general, make sure you’ve got good support when dealing with a mortgagee sale – the nature of the process often requires good relationship management. Work closely with your supervisor, document all communication and instructions and take legal advice where you’re not sure.

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