Posted by Neeru Kesry on February 27 2020 in News

Whilst purchasing a property at a mortgagee sale may result in you obtaining a good deal, purchasers need to be aware of the possible related risks.

It is imperative for purchasers to complete their research, due diligence investigations and obtain the necessary legal and professional advice before bidding at a mortgagee sale as the form of the Mortgagee Sale Auction/Tender Agreement is likely to be unconditional at the time of signing.

Issues to consider for purchasers at mortgagee sales may include (but are not limited to):

  • Ensuring the Mortgagee Sale Auction Agreement is reviewed by your lawyer. It is standard for all vendor warranties to be deleted and clauses included noting the vendor is selling as mortgagee and that no warranties are given by the vendor. There may, for example, be unpermitted work completed for which a code of compliance is required and you will have no recourse against the Mortgagee as vendor for these works.
  • The Mortgagee as vendor is not required to give vacant possession or provide keys etc. on settlement. The property is sold subject to existing tenancies or occupations including holding over by the mortgagor. It will be up to the purchaser and at its cost to legally remove any tenant/occupant after settlement when the purchaser is the registered proprietor of the property.
  • It is also standard for the property to be at the sole risk of the purchaser from the ‘fall of the hammer’ at the auction, so the purchaser will need to ensure they are able to obtain and have insurance cover in advance. This may impact on the purchaser obtaining mortgage finance. It should be disclosed to the insurance company that the property is being purchased at a mortgagee sale.
  • It is usual for no chattels to be included in the sale. They may be removed and together with the property be damaged by an aggrieved mortgagor before the settlement date. It is also usual for no warranty or representations as to title or ownership of any chattels, plant, equipment and fixtures to be given by the Mortgagee as vendor.
  • Access to view the interior of the property may not be granted which could be problematic especially if the purchaser is wanting to obtain a specialist report and to check if there has been any work done that required a building permit/consent.

Taking prior professional advice and completing your due diligence and research will assist and mitigate any potential risks. It is important to consider and be aware of the above issues we have raised and, in doing so, you may well purchase and enjoy a property sold by a mortgagee.

This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.