What is a Forced Sale and Mortgagee-in-possession?
When a homeowner stops making payments on their mortgage the lender will recover the asset by taking possession and selling the property. This forced sale is typically called mortgage-in-possession. As per the agreed contact the borrower must make payments on their loan on or before a specified date. Failure do to so enables the lender to exercise their right to take legal possession and sell the real estate.
Are mortgagee in possession properties cheaper to buy?
On average this type of forced sale can be 5% – 10% cheaper. However, current market prices will usually determine the sale amount. Most bidders for the property will be conservative in the hope of realising a bargain. This can be advantageous if the property for sale does not meet its reserve price.
By law banks have to demonstrate that they have put in place a marketing campaign advertising the property. This is to ensure that the property gets the highest possible return. Failure to do so can give grounds from the mortgagor to claim compensation. Make sure you ask the seller if the property is a mortgagee sale.
The lender must get 2 independent valuations from certified valuers prior to setting the price. The leander is not obligated to do a property inspection.
If you are a buyer then do your homework.
Seek legal advice to determine if there are lapsed payments of rates, body corporate and other associated costs. And, if this is then carried forward to the new owner. Also, find out if the property is sold with vacant possession. Carry out a property inspection.
Does the amount of money on the home loan effect the price?
The mortgagor may not own the home anymore. However, they still have rights and can make sure the property is sold for fair value. Lets say the bank is owed $200,000 on a property that is valued at $400,000. If the property was sold for $200,000 the mortgagor would have a good case to claim compensation. If you are the mortgagor you should pay close attention to all proceedings.
What are the risks associated for mortgagee in possession properties?
- Firstly, you will probably be buying the property as is.
- Is there more than one party invested in the property? This means clear title may not be guaranteed.
- Are the Chattels/Goods included in the sale?
- Have any additions to the property been approved by Council?
- Are all the boundaries and codes compliant?
How to find Mortgagee in Possession Properties
There is no one database for properties that have become mortgagee-in-possession. There are some real estate portal websites that offer these properties as listings. Forced Sale has a list you can browse.