If you buy a property at a mortgagee sale, be aware that you are
entering a contract that is quite different in its nature to an
agreement entered into in other circumstances. The agreement is
likely to be weighed heavily in the mortgagee's favour as
mortgagee sales involve factors outside of the mortgagee's
control, which it will want to protect itself from. This may
include a very unwilling and impecunious owner occupier who is
being forced to leave their home by the mortgagee which assisted
them to get there in the first place. In such circumstances the
mortgagee is usually unwilling to negotiate terms with the
purchaser and adopts a take-it-or-leave-it stance.
It is not uncommon for purchasers to face difficulties after
settlement, such as having to evict a previous owner occupier or
having to deal with damage caused to the house by the disgruntled
owner. In one instance the occupier took all the chattels from the
property and sold them to pay other sundry debts, leaving the
purchaser out of pocket.
Other common issues for purchasers at mortgagee sales can
There is less protection for purchasers as the agreement
usually does not include standard provisions. For example, the
mortgagee will have removed the section in the agreement relating
to the vendor's warranties and will have removed the right for
the purchaser to approve title. Often purchasers will not be able
to view the property beforehand as the owner does not allow an
inspection, so it will not be clear whether work has been carried
out that should have required a permit.
Purchasers may not be able to claim against the mortgagee for
late settlement/possession as there may be situations where the
mortgagee is unable to evict the owner. The mortgagee does not
guarantee that it will give vacant possession on the day of
Once the contract is signed it is unconditional and so requires
thorough due diligence prior to signing. Even though a contract is
unconditional, the terms may allow the bank to cancel the agreement
prior to settlement if the owner pays the debt. This means the
purchaser is unable to know whether settlement will actually occur
until the day of settlement.
The mortgagee may require the purchaser to insure the property
from the moment the agreement is signed, because the mortgagee
ceases to accept responsibility for loss from the moment the hammer
falls. Buying a vacant property at a mortgagee sale reduces the
chance of the house and chattels being interfered with prior to, or
Mortgagee sales offer an opportunity to buy a property at a
reduced cost. To lessen the chances of problems occurring you must
understand the agreement well and undertake a thorough due
diligence investigation prior to entering into the agreement.
You should seek legal advice before the auction, as well as
checking the title, council records and the property in advance, if
possible. However, there may still be some issues that arise that
are out of your control as purchaser.
The above is by no means an extensive list of the issues that a
purchaser could face, but it is a reminder to put your ducks in a
row before buying a property at a mortgagee sale.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Be aware that most modern subdivisions now include land covenants which are registered against the titles.
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