Mortgagee Sales – What To Look Out For

Date Published: 16 August 2022

Property prices have increased significantly over the past few years but so have interest rates and with recent changes to the CCCFA, lending has gotten more difficult.  It can be tempting for buyers to be on the hunt for a bargain.  Nothing says “desperate seller” for most buyers than a mortgagee sale.  This is typically an owner, or owners, that have been unable to pay their mortgage, and the bank is now selling the property on their behalf.

There are some things that a buyer, particularly a first home buyer, needs to be careful of when purchasing a property under mortgagee sale.  We spoke to Kate Chivers from Turner Hopkins who had the following to say:

Mortgagee sales really are a case of buyer beware. A purchaser would essentially be purchasing a property on an “as is, where is” basis.

It’s important for a Buyer to realise that there will be no guarantee that the property purchased will come with vacant possession. On settlement, the purchaser may be left to evict a tenant or even the previous owner.  This can be time-consuming and costly. The purchaser might not get keys for the property on settlement, and even if keys were available, we would recommend that the purchaser engaged a locksmith to change the locks. There have been instances where the sitting tenant or owner has maliciously damaged property subject to sale, and this could be another unexpected cost a potential purchaser may have to attend to.

Prior to purchase, there may not be the opportunity to view the property or complete an adequate level of due diligence. Even if viewings were available, things could change without the purchasers knowledge prior to settlement. Such changes would most likely be outside the purchasers control and would be unlikely to be compensated by the mortgagee.

We would expect to see the standard form ADLS sale and purchase agreement heavily modified most of these modifications are likely to be designed to protect the mortgagee such as exclusions to the standard vendor warranties. This means a purchaser would have no recourse if, after settlement, they subsequently found, for example, unconsented works or malicious damage.

Summary:

We realise Mortgagee Sale properties can be tempting, and if the risks are positively mitigated, they may result in the purchase of a property at a bargain price.  We recommend you engage a lawyer with experience in mortgagee sales early in the process and before making any offer to purchase.  Getting professional advice will help mitigate the risks and save you a lot of trouble and cost in the longer term.

Further Reading:

Not sure how much you need to put towards your first home?  We discuss deposit requirements in this article.

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