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What happens when a property is Repossessed by the Mortgagee in Australia?

Updated: Mar 26



how to avoid Mortgagee in possession

In the current (year 2024) environment where interest rates are rising more than expected, many property owners find themselves grappling with the challenge of increased mortgage repayments.


While some are tightening their belts and cutting back on expenses to retain their properties, others may find themselves reacting too slowly or inadequately, leading to precarious situations. If you have a mortgage, having the bank or lender repossess your property is one such situations where no one wants to be in.


So, what happens if you receive a call or notice from your bank or lender wanting to repossess your property?


This blog article will help explain what does on during a repossession process, and help you explore ways to avoid getting there.


What is a Mortgagee in Possession?


A Mortgagee in Possession, in Australia, refers to a situation where the lender, typically a bank or financial institution, takes possession of the property or collateral due to the borrower's inability to meet their mortgage repayments. Essentially, it signifies the repossession of the property by the lender because the borrower has defaulted on their mortgage obligations, often by missing multiple payments over an extended period. This process is initiated to recover the outstanding debt owed by the borrower.


Then the lender decides to initiate repossession orders, it usually means the lender does not believe you will be able to resolve the situation. That means you might have a debt so high that you are unable to recover without selling the property or any other collaterals.


What happens before a repossession?

The lender will usually try to work with you to define a plan for you to catch up with the arrears. This could be restructuring the mortgage, agreeing to give you a repayment holiday, etc.


What is the Property Repossession Process in Australia?

If all else fail, and the lender decides to proceed with the repossession, here is what usually happens. As usual, different lenders and different circumstances would have a slightly different process. But here's what typically happens when a property is repossessed:

  1. Notice of Default: The lender sends a notice of default to the borrower, informing them that they are in breach of their mortgage agreement due to missed payments. They will encourage the borrower to work with the lender to arrive at a solution agreeable to both parties.

  2. Attempted Resolution: The lender will usually attempt to work with the borrower to find a solution to the delinquency, such as renegotiating the terms of the loan or offering a repayment plan. Some lenders will try to work with the borrower before sending a notice of default.

  3. Legal Proceedings: If the borrower fails to rectify the default or comes to an agreeable solution, the lender may commence legal proceedings to repossess the property. This involves obtaining a court order for repossession.

  4. Repossession: Once the court grants the repossession order, the lender takes possession of the property. This may involve physically evicting the occupants, if necessary. And you may come home one day with the locked changed or the doors sealed.

  5. Sale of the Property: After repossessing the property, the lender typically seeks to sell it in order to recover the outstanding debt owed by the borrower. Depending on the lender, situation and the property, the property may be sold through auction, private sale, or other means.

  6. Debt Settlement: If the proceeds from the sale of the property do not cover the full amount owed by the borrower (including the mortgage balance, interest, late fees, penalties and any debt recovery, management and associated costs), the borrower is usually still be liable for the remaining debt. In some cases, the lender may pursue legal action to recover this debt.

  7. Lenders Mortgage Insurance (LMI): If the borrowers have lenders mortgage insurance, the lenders will recover the shortfall from the insurer. But that doesn't mean the borrower get off scot free. The LMI insurer will, in turn recover this shortfall from you.

  8. Surplus Funds: If the sale of the property generates more proceeds than the amount owed by the borrower, the excess funds (surplus) may be returned to the borrower, depending on the specific circumstances and applicable laws.

  9. Bankruptcy: If the sales did not cover the mortgage and cost of repossession, and you are unable to find funds to cover the outstanding debts or reach an agreement to repay the debts, the creditors may be forced to apply to make you bankrupt.


How long does the Repossession Process take?

In Australia, the process usually takes between 2 to 3 years. IE, most mortgagee in possession properties will hit the buyers market after a lengthy 2 year process.


It's important to note that the process and duration of repossession and sale of a property can vary significantly depending on factors such as the terms of the lenders' internal processes, lenders' mortgage agreement, state laws, and individual circumstances.


How can you avoid ending up in the Mortgagee in Possession Situation?

Let's go back to investment and money making basics. By being prudent with your spending and borrowing, one can usually avoid ending up in a mortgagee in possession situation. Here are a few very simple and basic concepts:


1. Avoid Overextending yourself

Never stretch yourself beyond your means. Assess your financial capability meticulously. While a mortgage broker may suggest you can borrow a certain amount based on your income and expenses, ask yourself essential questions:

  • Do you need to buy a property worth that amount?

  • Can you comfortably manage the monthly mortgage payments?

  • Is investing that amount in property the best choice for your financial situation?

As much as mortgage brokers tries to help you find the best mortgage, no mortgage brokers or financial experts know you better than you do. Always remember, mortgage brokers earn commissions based on the amount you borrow, so they may push for higher borrowing. Be cautious and prioritize your own financial stability.


2. Avoid Negatively Geared Properties

Negatively geared properties entail incurring losses with the hope of future profits. It effectively means you're losing money, hoping to make money in future. This strategy is typically suited for wealthy investors who can absorb losses without significant impact. Unfortunately, spruikers and fake property investment "strategists" and project marketers often targets individuals who may not have the financial resilience to sustain losses. Many novice investors are tempted by the greed of "potential future growth", that they forgot the basics of property investments. Negative gearing can bite you very hard during a property downturn or when the interest rates are rising.


Before diving into negatively geared investments, consider whether you can afford the risk:

  • Can you afford to potentially lose the property?

  • Assess the implications of high-interest rates on such investments.


It's concerning that some individuals explore negative gearing when interest rates are high, without fully understanding the implications. Negative gearing is effectively losing more money to save on taxes. It's akin to losing a dollar to save 30 cents – a scenario nobody should desire.


In the Australian investment environment, how do you like losing $1, just to save 30 cents? I'll send you my bank details, if you like that. For every dollar you deposit, I'll return 30 cents to you. No. Let's make it 35 cents, for every dollar you send us.


By adhering to these principles and making informed decisions, you can safeguard yourself from the risks associated with Mortgagee in Possession situations and ensure a more secure financial future.


What should you do, if you think your property may be Repossessed?

If you're concerned that your property may be repossessed due to financial strain, it's essential to take proactive steps to mitigate the situation::

  1. Review your expenses: Conduct a thorough review of your expenses to identify areas where you can cut back. Look for non-essential expenses that can be eliminated or reduced to free up more funds for mortgage repayments..

  2. Increase your income: Consider ways to boost your income, such as taking on a second job or pursuing opportunities for higher-paying employment. Generating additional income can help alleviate financial pressure and improve your ability to meet mortgage obligations

  3. Assess Troublesome Properties: Evaluate which properties in your portfolio are causing the most financial strain. Identifying these properties allows you to prioritize them for action, whether through restructuring loans, refinancing, or selling.

  4. Explore Refinancing: It might be too late, as the banks would have tightened their lending, so, you might not be able to refinance. But it is worth a try. If you're using a mortgage broker though, be wary what you info you share. Mortgage brokers usually have connections asking for cheap properties. They will be low balling your properties..

  5. Talk to the Bank: This might be counter-intuitive, but remember, the banks are not in the real estate business. They want their money and are keen to work with you to try to recover what they are owed. Explain your situation to them, and they might be able to work out a payment option with you. They may allow you to delay your payments, or restructure your mortgage to lower your monthly payments.

  6. Explore Property Sales: If you're struggling to maintain multiple properties, consider selling those that are causing the most financial stress. Liquidating assets can help alleviate financial burdens and prevent further escalation of debt.

  7. Seek Professional Assistance: Reach out to professionals such as buyers advocates and financial advisors who can provide guidance and support during this challenging time. Consult with financial advisors or property experts to explore viable solutions and navigate the repossession process effectively.

  8. Be Proactive: This may be a stressful moment for you, but it is not the time to be emotional. Don't delay in seeking assistance if you anticipate repossession. Acting promptly allows you to explore options and take necessary steps to protect your financial interests before the situation escalates further. You need to avoid getting yourself into a repossession situation.

Be Proactive. Act before the bank does.

What should you do to avoid the Mortgagee in Possession Situation?

Borrowers facing financial difficulties should seek advice from a financial counselor or legal professional to understand their rights and options.


Can you negotiate with the Mortgagee to avoid repossession?

Yes and no. It depends on how far you are behind in repayments, your relationship with the Mortgagee and your personal circumstances. But if you have been proactive, chances are, you can avoid getting yourself in this sticky situation. And if you still get into a potential repossession situation, your mortgagee is more likely to work with you for a mutually beneficial situation. Here's some tips if you need to negotiate with your mortgagee.


What should you remember when you negotiate with the Mortgagee?

There is one fundamental thing you need to remember when you negotiate with the lender. The business model of the major banks and lenders is not about owning properties or selling properties. They lend you the money for your properties on the premise that you can return the principal plus the agreed interests.


Thus, within reasons, banks will try their best to negotiate with you, and accommodate your needs, so they can avoid having to sell your properties. And if all things failed, and they have to force sell your properties, you can be sure it means they believe it is too late, and they do not see you recovering from your debts, and they will not be the happiest person. It is a business transaction to them, without any emotions attached. If they have to take possession, you can be sure they will but their best team to do it, in the shortest time possible and with the highest possible fees, interest rates and charges.


Can Buyers Advocates help you avoid Repossession?

Buyers Advocates can play a crucial role in helping you avoid repossession by providing timely assistance and access to potential buyers for your property:

  1. Access to a Pool of Buyers: Buyers Advocates have established networks and connections with potential property buyers. By reaching out to them, you gain access to a pool of interested buyers who are ready to purchase properties.

  2. Swift Action and Response: If you suspect that your property may be at risk of repossession, it's essential to act swiftly. Buyers Advocates can provide immediate assistance and support, offering guidance on the best course of action to protect your property interests.

  3. Opportunity to Sell Before Repossession: By engaging with Buyers Advocates early in the process, you have the opportunity to explore selling your property before repossession proceedings begin. This proactive approach can help you avoid the negative consequences associated with repossession.

  4. Potential Cost Savings: Selling your property through Buyers Advocates may result in significant cost savings compared to traditional real estate transactions. With no commissions involved and access to motivated buyers, you can potentially save thousands of dollars in fees and expenses.

  5. Expert Guidance and Support: Genuine Independent Buyers Advocates offer expert guidance and support throughout the selling process, helping you navigate complexities and make informed decisions. Their industry knowledge and experience can be invaluable in securing a favorable outcome.

  6. Preventing Further Financial Strain: By selling your property before repossession occurs, you can prevent further financial strain and minimize the impact on your credit rating and financial stability. Buyers Advocates can help expedite the sale process, ensuring a smooth transition and resolution.

  7. Timely Intervention: Seeking assistance from Buyers Advocates at the earliest indication of financial difficulty allows for timely intervention and mitigation of potential risks. Their proactive approach can help you address challenges effectively and protect your long-term financial interests. If you are in a no-return situation, the earlier you sell, the less interest and debt recovery costs you will owe your bank/lenders/creditors.


Talk to us. Buyers Advocates offer a proactive and effective solution for avoiding repossession by facilitating the sale of your property to motivated buyers. Our expertise, network, and timely intervention can make a significant difference in preserving your financial well-being and securing a positive outcome. We have a constant pool of buyers who are ready to buy your properties.


If your property meets the criteria our buyers are looking for and bought it, you can save yourself over $30k-100k or more. It is quite a substantial savings, but you will need to come to us before the bank initiates their debt management and repossession process.





Disclaimer:

Information provided here and anywhere in our website is general information only, and should not be taken as financial or legal advice. It does not take your personal circumstances, needs and requirements, etc, into consideration. You should always seek formal legal and financial advice for solutions to suit your individual circumstances.



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