Buying at Mortgagee Sale – Bag a Bargain!
By Kirsty Kupa
The current "economic crisis" has seen a dramatic increase in the number of properties on the market, under the ominous sign of "mortgagee sale".
For many, this is seen as a prime opportunity to get a bargain with a mortgagee keen to recover its money from the proceeds of sale, as quickly as possible.
However, when you buy at mortgagee sale, you need to be aware that you will most likely be entering into an Agreement for Sale and Purchase which is quite different from "the norm".
The mortgagee has the power to sell the property, but otherwise has very little control over the property itself. As a result, the agreement will be heavily weighed in the mortgagee's favour by limiting the liability of the mortgagee vendor for problems, so that all the risk in the purchase falls on you as purchaser.
Common risks to you as a purchaser include:
•Ø Behaviour of the property's owner, who is usually less than happy to see his property sold from underneath him and may not be prepared to leave without a fight. The mortgagee may have no responsibility to ensure the property is vacant when you take possession and the job of removing the owner or anybody else that might jump at the chance to have a free place to stay, is all yours;
•Ø The mortgagee will give no assurances about the presence or state of the chattels in the property. There have been many sad stories of a purchaser taking possession only to find the property stripped of all its chattels or the chattels damaged beyond repair. You are unlikely to be able to do a pre-settlement inspection, particularly if the owner is not co-operating with the process;
•Ø The mortgagee is likely to place responsibility of insuring the property from the date of signing the agreement, until settlement, firmly in your hands. You will need to disclose any occupation by the owner to your insurance company, which may decline cover or require a higher premium;
•Ø The mortgagee will not give any of the warranties about the property, that are usually found in agreements for sale and purchase so there will not be usual warranties covering Resource Management Act or Building Act issues. There may be outstanding requirements relating to the property that you will inherit on settlement; for example, there may have been work complete without the necessary building consent;
•Ø You will not be entitled to make any objections about the title to the property.
•Ø The property is purchased on an "as is, where is" basis;
•Ø The agreement may provide for delayed settlement without any come back against the mortgagee, if the owner or any other party who may be after some money from the owner mounts a legal challenge to stop the sale. So don't pack your bags straight away.
•Ø There may be an "out" clause for the mortgagee which operates if there is any legal challenge to the sale;
This is by no means an exhaustive list of the potential problems. Most mortgagees will have a draft agreement for you to take away and consider. The terms may not be negotiable. You simply get to insert your price and sign!
You must be aware of the potential pitfalls that come with your "bargain". Get legal advice before you sign!
