NAVIGATING MORTGAGEE SALES: KEY CONSIDERATIONS FOR LENDERS
Posted by Tilly Tong on May 16 2023 in News
As interest rates continue to rise, many borrowers may find it increasingly difficult to keep up with their mortgage repayments. In some cases, this may lead to a mortgagee sale, where a lender sells the security property to recover the outstanding debt owed by a borrower. Unlike typical property transactions, mortgagee sales can be more complex and require the expertise of specialised lawyers, real estate agents, and valuers that are experienced in dealing with these kinds of transactions.
In New Zealand, the mortgagee sale process is governed by the Property Law Act 2007 (Act), and there are several things that a lender should be aware of before proceeding with a sale.
Understanding the legal framework: before power of sale is obtained
The Act sets out the legal requirements for mortgagee sales, including the steps that a lender must take before selling the property. The Act requires notice to be given to the mortgagor and other interest parties, such as covenantors, subsequent mortgagees, and caveators of the lender’s intention to sell the security property if the defaults are not remedied. Care should be taken to ensure all parties are properly served.
There are also strict requirements for the notice period under the Act, which recently reverted to 20 working days (previously 40 working days) following the end of the Covid-19 period (as defined under the Act). To avoid a notice being deemed ineffective, a lender should ensure that the Act’s minimum period to remedy the default, along with other requirements, are met.
Mortgagee sale: things to consider
After obtaining a power of sale, if a lender chooses to proceed with a mortgagee sale, there are several matters to be aware of (including but not limited to the following):
Valuation: A lender should conduct a property valuation to determine the market value of the property. Engaging a qualified valuer who is experienced in conducting valuations for mortgagee purposes to conduct the valuation will ensure that the valuation is accurate and reliable. The valuation report should give an indication of the estimated price range for the property if sold by the owner on the open market, and if sold by a lender. This is to ensure that a lender meets its best price obligation and obtains fair value for the property.
Engaging experienced Real Estate agents: A lender should engage a reputable agent experienced in dealing with mortgagee sales, as it is common that agents may face difficulties in a mortgagee sale situation, such as the owner not granting access resulting in only roadside viewings. An experienced agent would also ensure that an appropriate marketing campaign is undertaken/method of sale is recommended.
Proceeds of sale: Once the property has been sold, a lender must determine how to distribute the proceeds of sale. A lender should ensure that the proceeds are distributed in accordance with the Act.
A mortgagee sale can be a complex process for a lender. By understanding the legal framework for mortgagee sales and engaging professionals experienced in the area, a lender can minimise the risks associated with a mortgagee sale and ensure compliance with all legal requirements.
If you would like further information on any of the above, please contact Richard Hatch.
Richard Hatch | Partner | Richard.Hatch@shieffangland.co.nz
This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.