Mortgagee sales increasingly common
In our offices, we are suddenly seeing an unfortunate rise in mortgagee sales. A mortgagee sale occurs if a property owner can no longer meet their mortgage repayment obligations, and their lender or bank forces the property to be sold.
Disadvantages of distressed property sales
There are significant downsides for a property owner in having a distressed property sale, with properties often being sold for less than market value, and on the bank’s terms, meaning the owner has little or no control over the sales process.
In addition, the public nature of a mortgagee sale, as well as the negative impact on credit scores and the need to cover other unexpected costs – such as the mortgagee’s legal fees and interest – make a mortgagee sale an extremely distressing process.
Tips to avoid a mortgagee sale
If you find yourself in financial difficulty with your principal place of residence or an investment property, taking decisive and strategic action early may help you avoid a forced mortgagee sale.
As a property lawyer, I have three main tips that may help you avoid foreclosure.
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Be realistic about your position and move quickly
Time is of the essence in distressed property sales. Every day of delay adds to the financial strain, from default interest to professional fees charged by lawyers and administrators. These fees can quickly snowball.
The faster you accept the position you’re in and take action, the sooner you can take control of the situation. Dragging your heels only accelerates the financial downward spiral.
Speak with your lender at an early stage.
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Don’t make promises you can’t keep
When dealing with banks and lenders, honesty and follow-through are vital. Broken promises can jeopardise any chance of negotiation or achieving more favourable terms for yourself.
I advise my clients to ensure they always deliver what they have promised on time and keep the bank and their solicitors fully informed throughout the process.
For example, keeping the bank informed about the engagement of an agent to sell the property and offers you have received demonstrates transparency and the fact that you really are trying to sell the property. It’s crucial to show that you’re actively working on the sale.
If your lender can see that they can rely on you, they’re far more likely to collaborate or agree to your terms, potentially buying you time to improve your position.
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Recognise when you’re in trouble – and act on it
Acknowledging that you’re in financial trouble isn’t easy, but denial only worsens the problem.
A client who chose to negotiate with their bank early managed to secure time to sell their property privately, avoiding the stigma and limitations of a mortgagee sale. This allows them to sell the property on their terms, bypassing complications like bank-initiated valuations and enforced pricing.
While this might not necessarily seem like a win, the ability to act independently and, hopefully, avoid a distressed property sale can make a big difference to your financial position and future credit score.
Ultimately, mortgagee sales are a race against time, interest and mounting fees. By being transparent, keeping promises with your lender and moving quickly, you may be able to minimise the financial damage and maintain some control over the sales process.
Hopefully this will mean you are able to sell the property on your own terms, rather than as a distressed mortgagee sale.