Mortgagee Sales in NZ: Bargain or Big Risk?
When house prices are high and interest rates are climbing, mortgagee sales begin to reappear on the market. And on the surface, they can seem like the golden ticket to picking up a property at a bargain price. But before you dive into bidding, it’s crucial to understand exactly what a mortgagee sale is—and why it differs so significantly from a standard purchase.
Mortgagee sales come with fewer guarantees, more legal grey areas, and potential risks that can catch buyers off guard. Let’s break down everything you need to know before buying a property under mortgagee sale in New Zealand.
What Is a Mortgagee Sale?
A mortgagee sale occurs when a borrower (the mortgagor) fails to meet their loan obligations—most commonly, falling behind on mortgage repayments. The lender (the mortgagee—typically a bank or finance company) then exercises their right to sell the home in order to recover the debt.
This process is a last resort, and often a distressing one for the property owner. Banks are legally required to give four weeks' notice to the borrower, outlining their concerns and allowing time for the issue to be resolved. If the owner remains unresponsive, the property may be forcibly sold—usually via auction or tender.
Why Are Mortgagee Sales Often Cheaper?
Mortgagee sales are usually priced below market value because:
The seller (bank) is focused on recovering debt, not maximising price
The property is sold “as is, where is” with no warranties or guarantees
Buyers may not get access to view or inspect the home before purchase
Additional risks fall on the buyer, such as evicting occupants or repairing damage
These uncertainties discourage many buyers—so if you're comfortable with risk and do your homework, you might secure a lower price than usual.
The Buyer’s Risks: What You Must Know
Mortgagee sales come with a long list of caveats that buyers must fully understand before proceeding.
1. “As Is, Where Is” with No Warranties
In a standard sale, the vendor usually guarantees things like clear title, working chattels, code compliance, and vacant possession. Not so in a mortgagee sale. You get no warranties about the property’s condition, consent status, or what’s included in the sale.
It’s not uncommon for former owners to remove curtains, ovens, light fittings, or even intentionally damage the home out of frustration. You’ll have no legal recourse for this damage post-settlement.
2. No Guarantee of Access—or Keys
Many mortgagee sale properties are sold without the ability to inspect the inside. In some cases, real estate agents are forced to rely on exterior photos only. You may have to buy the property sight unseen.
Even once settlement occurs, you might not receive the keys. If someone is still living in the house—whether it’s the previous owner or a tenant—you may have to initiate eviction proceedings yourself, at your own cost.
3. Responsibility for Damage During the Danger Period
Once the agreement becomes unconditional, the buyer assumes responsibility for the property—even before settlement. If the home is damaged during this “danger period,” you can’t claim compensation. You must have insurance in place from the moment the contract goes unconditional, not from settlement day.
4. Limited Legal Protection
The Sale and Purchase Agreement is often heavily amended to remove standard buyer protections. Clauses related to chattels, consents, title, and warranties are stripped out. You're essentially agreeing to take on all the unknowns.
5. The Sale Could Be Withdrawn at Any Time
Even after you've gone unconditional or made a winning bid at auction, the mortgagor (property owner) can still repay their debt and stop the sale—right up until settlement. This can waste significant time and money for the buyer.
Other Practical Issues
- Lack of Documentation
The bank is under no obligation to provide LIM reports, code compliance certificates, or details of outstanding rates. It’s your job to do this due diligence.
- Difficulties With Finance
Many banks require a valuation or building inspection before approving a mortgage. If you can't access the property, getting the finance approved becomes more difficult.
- Chattels Often Missing
Don’t expect the dishwasher or even light bulbs to be left behind. Chattels often disappear before settlement, and you're left replacing them.
When Can a Mortgagee Sale Be Withdrawn?
Right up until the property settles, the mortgagor can repay their debt or negotiate with the bank to keep the house. This means a property listed for mortgagee sale can be pulled at the last minute—even after you've paid for legal advice or inspections.
Sometimes, the owner even decides to sell the home through a second agent to try and recover more value than the mortgagee sale is expected to bring.
Can You Get a Mortgage for a Mortgagee Sale?
Yes—but you need pre-approval before bidding. Given the risks and unusual terms of mortgagee sales, some lenders may be more cautious. If you require finance, ensure your bank is aware you’re purchasing through a mortgagee process.
A strong pre-approval—and ideally cash-ready deposit—makes you a more appealing buyer in this fast-paced environment.
Legal Considerations: Talk to a Lawyer First
It’s essential to have a lawyer review the Sale and Purchase Agreement before you sign or bid. Make sure they:
Review the special conditions
Identify risks and missing warranties
Explain your responsibilities post-settlement
We also recommend ordering your own LIM report, title search, and checking for building consents—even if access is limited. This due diligence becomes even more important when standard seller information is absent.
Is It Worth Buying a Mortgagee Sale?
If you’re experienced in property, handy with tools, or financially prepared for surprises, then yes—a mortgagee sale can be a worthwhile investment. But for first-time buyers or risk-averse purchasers, the unknowns can outweigh the discount.
Even real estate professionals agree—“nobody really wins with a mortgagee sale,” says Whangārei agent Karl Leathley. These sales are often a last resort and reflect distress on all sides.
Know the Risks, Prepare Accordingly
Mortgagee sales present an opportunity—but only for buyers who are well-prepared and well-informed. You're giving up access, protection, and certainty in exchange for a potentially lower price. For that trade-off to be worth it, you need solid legal advice, excellent due diligence, and enough financial cushion to manage unexpected costs.
If you're considering a mortgagee sale, talk to a mortgage adviser to get pre-approval sorted, and contact a lawyer with experience in these sales to help review the contract before you commit. That way, if you're ready to take on the risk, you’ll be doing it with both eyes wide open.
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