Mortgagee Sales Specialist
Licensed Sales Consultant
P 03 385 8585
M 0274 330 112
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In New Zealand it is commonplace to market a mortgagee property by Auction. This provides an organised time for purchasers to complete research (due diligence). Negotiations are in a transparent forum with an experienced negotiator, under the mortgagees terms of sale and demonstrates a fair reflection of market value.
There are some points or potential pitfalls to be aware of when purchasing a mortgagee sale property;
Particulars and Conditions of Sale Document
The agreement used in these sales is not standard. The agreement can vary subtly on every mortgagee auction. They contain variations and deletions from the standard conditions of Auction.
“The term “buyer beware” comes to the forefront but just requires gathering as much information as possible on the property prior to auction and legal advice is always recommended.”
Vendor Warranties
Vendor warranties are usually deleted as there are no guarantees that any improvements made by the vendor are compliant with local council regulations, chattels are not normally guaranteed and the mortgagee generally has no knowledge of any notices on the property. Chattels will obviously be deleted if they are not included but warranties and permits, notices etc are the domain of the local council.
This is understandable as the mortgagee has generally no knowledge of the properties history or who owns which chattel.
A visit to the local council and drawing the property file can normally appraise you of the history of the property.
Risk and Insurance
Risk and insurance is normally the responsibility of the buyer at the fall of the hammer.
Organise this with your insurance broker prior to bidding.
Disgruntled defaulting owners have been known to damage the building and remove fixtures etc before settlement date and if the damage is caused after the fall of the hammer and before completion date then the risk falls with the purchaser.
I note there has been a couple of instances highlighted in the media, however, practically it is not a common occurrence but it can happen. Preparing for insurance coverage on sale day is important.
Deposit
Deposit is a standard 10%.
Normally this is not negotiable. If you needed a variation either on the level or structuring the payment details of the deposit, you need to apply to the mortgagee through your marketing consultant, prior to negotiating/Auction. However, very seldom does the mortgagee vary this condition of Auction.
10% is quite the norm for most auctions today whether they be standard or mortgagee.
Vacant Possession
Most mortgagee sales are NOT sold with vacant possession. Therefore it is up to the purchaser to serve notice on tenants, if required, or notify the previous owner on when they need to vacate.
Marketing Period
The mortgagee under the “Property Law Act 2007” is required to do the very best for the mortgagor. A full period of exposure to the market ensuring every possible buyer has had an opportunity to view the property is instrumental in demonstrating this duty of care.
It is therefore unusual (notwithstanding special circumstances) for a mortgagee to sell prior to the Auction date.
Redemption of Debt
The mortgagor has every right to redeem the mortgage prior to the sale date or even sell the property themselves. You need to be aware that you can prepare for sale only for the property to be withdrawn minutes prior to the Auction.
It is fortunate for the owner when this occurs and disappointing for buyers who have carried out due diligence prior – it is certainly not the consultant or auctioneers fault.
Mistakes
The majority of these special conditions of Auction will make reference to any decision to purchase be made solely by the buyer and any mis-description, mis-statement whether in the Particulars and Conditions or advertisement will not entitle either party to compensation or annul the sale.
The point here is to thoroughly check out the property and feel comfortable with what you are purchasing.
Purchaser Judgement
All purchasers are deemed to have inspected the property, have knowledge of improvements and condition of all fences and generally no requisitions for this will be entertained. The mortgagee emphasis in plain English that you do purchase the property under your own judgement without reliance in anything said.
This is stock standard and as such simple research including council files and title etc can be easily achieved.
Title
The title is deemed to have been accepted with no requisition. This is normal as in standard particulars of Auction.
Mortgagor Refusing Purchaser Entry
A distressed owner may not allow any purchaser visits. This is understandable in the situation but not desirable, it does not stop the sale under the power of sale.
In this case purchasers make the decision to purchase from “the footpath” and take this lack of intimate knowledge about the property into account and discounting their bid accordingly.
Completion Date
In the Particulars and Conditions they discuss completion date (possession and settlement). Details and remedies for default are listed at length.
Please note conditions of settlement can vary from document to document and it does pay to read this carefully.
Please note:
Mortgagee sales don't sit well amongst most people due to unfortunate situations, however the situation can be a lot more unfortunate if the problem isn't resolved quickly and professionally.
The majority of mortgagee sales are auctions and are sold under the Particulars and Conditions distributed by the solicitor acting for the mortgagee.
When a purchaser first reads them they do generally appear a little daunting, raising concerns of a lack of rights and remedies for a purchaser. However do not get too overwhelmed, just understand the document. See the local council for information, review recent sales, get legal advice and set your limits accordingly and bid with confidence.
Don't forget the mortgagee has taken into account a number of aspects in setting their reserve including the deletions from a normal contract and they are focused on selling.
Important Note When Bidding At Auction
Please note in the case that the highest bidder does not reach reserve then generally that bid will be forwarded immediately to the mortgagee for their consideration and can often sell to that buyer.
Little tip – if a property is going to pass in at a level you could pay then be that top bidder.
