The Buyers Guide to Mortgagee Sales
What is a mortgagee? A mortgagee is a party, normally a bank, institution or finance company, sometimes even an individual person, who has lent money to another party (the mortgagor) and has taken security for that loan over a property owned by the mortgagor.
What is a mortgagee sale? A mortgagee sale is when, as a result of the mortgagor not meeting their obligations under the terms of the mortgage, usually in not meeting their mortgage repayments, the mortgagee exercises its power of sale by selling the property to recover its debt, after completing a legal process.
How is that done? In the majority of cases the property is offered for sale by public auction or tender.
Is a mortgagee auction or tender different from a normal auction or tender? As the mortgagee is not the owner of the property, it offers the property for sale under different terms and conditions. For example, most mortgagee sales are not offered for sale with vacant possession and do not include chattels in the sale. The mortgagee generally does not give warranties regarding building permits, Code of Compliances or boundaries. These are just some examples.
The full sale conditions are contained in the auction particulars and conditions of sale or the tender documents and prospective purchasers should obtain a copy of these from the real estate salesperson and familiarise themselves with the conditions of sale before attending the auction or submitting a tender. If they do not understand any of these conditions or are unsure on any matter, then they should consult their solicitor.
It is also the customer’s responsibility to have researched the property fully and satisfied themselves in all respects with regard to the property.
Is there a reserve set at a mortgagee auction? The mortgagee will set a reserve with the auctioneer, just prior to the auction. This reserve is kept confidential between the mortgagee and the auctioneer and is not made public.
How do I bid at a mortgagee auction? At a mortgagee auction, the bidding process is the same as at any other auction.
The auctioneer will open the bidding by asking for an opening bid and will then nominate the increments by which the bidding can be raised. For example, an opening bid may be placed of say $200,000. The auctioneer then nominates for the bid to go up in increments of say $10,000, meaning that the next person that bids will be offering $210,000 and so the bidding continues. To place a bid, you simply attract the attention of the auctioneer by raising your hand, calling out your bid or nodding your head when you catch the auctioneer’s eye. The auctioneer will advise when the property has reached the reserve and “is on the market” and the property will be sold to the highest bidder.
If you are the highest bidder, at the fall of the hammer you are required to immediately pay to the auctioneer a sum equal to 10% of the purchase price as a deposit and in part payment of the purchase price. You will also be expected to sign the auction particulars and conditions of sale to complete the purchase of the property.
What happens if the bidding does not reach the reserve? The property will be “passed in” and the mortgagee will consider post auction offers from any party, submitted through the mortgagee’s real estate agents. The top bidder at auction does not have a right to negotiate with the mortgagee to the exclusion of others. The mortgagee can negotiate with any other party.
What happens if the property is still not sold after post auction negotiations?
The mortgagee will then normally list the property for sale by negotiation through their real estate agents.
Can a mortgagee sale property be withdrawn prior to auction or closing of tenders? The mortgagor has the right to redeem or repay their mortgage, on terms satisfactory to the mortgagee, prior to the property being sold. As such, a number of properties offered for sale on behalf of a mortgagee are withdrawn from sale.