Mortgagee Repossession – How is it Achieved?
The majority of home owners in Australia will have a mortgage with a banking institution.
The lender of the money is referred to as the mortgagee while the borrower is known as the mortgagor. A mortgagee takes a mortgage over real property to secure the loan. When a mortgagor defaults on their home loan the mortgagee is given the right to repossess the secured property. These rights are contained within the terms and conditions that are given to a mortgagor when the mortgage is arranged. It is essential therefore for every new home owner to carefully read their rights and obligations.
There are a number of steps that a mortgagee must go through before they are given the right to take possession of the secured property. It is usual practice for a mortgagee to keep the mortgagor updated if there are any arrears with their loan. If the mortgagor fails to attend to the arrears or fails to make any arrangements as to the payment of the arrears the mortgagee will issue the required notices.
Notices
The mortgagee will send a section 57(2)(b) of the Real Property Act (NSW) notice. This notice will give the mortgagor 30 days to remedy the arrears figure otherwise the mortgagee will be entitled to issue Court proceedings with the view of taking possession.
Another notice that is often sent at the same time as the section 57(2)(b) notice is a section 80 of the Consumer Credit Code notice. This notice does not need to be issued if the loan is for an investment or business purpose and will only be issued if there is a home loan. The section 80 notice will provide details of the secured property in question and will give at least 30 days for the mortgagor to clear the arrears. The section 80 notice also includes an acceleration clause which allows a mortgagee to demand the entire loan amount if the arrears are not cleared within the time limit set.
If there is no response from the mortgagor within those 30 days, the mortgagee is given the right to commence Court proceedings to repossess the secured property. If a mortgagor realises that they cannot meet the repayments and cannot satisfactorily organise the repayments then it may be possible to sell the secured property themselves and then pay the mortgagee from the sale proceeds. The mortgagee may agree not to enforce their rights immediately if they can see that the mortgagor is taking prudent steps to sell the property. A private sale of the property will almost always achieve a higher sale value than if a mortgagee sells the property.
Court proceedings
Court proceedings are commenced with a Statement of Claim in the possession list of the Supreme Court. A Statement of Claim cannot be served without first issuing the notices described above and waiting the 30 days. If a mortgagor receives a Statement of Claim it is important that they seek legal advice. Unlike the notices described above the Statement of Claim will be personally served on the mortgagor. The Statement of Claim will set out the mortgagee’s case against you. If there are tenants in the secured property a Notice to Occupier will accompany the Statement of Claim. The Notice to Occupier can be ignored if there are no tenants in the secured property. A mortgagor should not ignore a Statement of Claim and legal advice should be sought so that a Defence can be filed. Any Defence must be filed within 28 days of service of the Statement of Claim.
If a mortgagor ignores the Statement of Claim and does not file a Defence within 28 days the mortgagee can obtain judgment for possession. To do this the mortgagee is required to complete a Notice of Motion – Default Judgment on a Claim for Possession of Land and within this Motion is a detailed account of the default and outlines when and how the Statement of Claim and Notice to Occupier was served.
If the Court is satisfied that the mortgagee has taken all necessary steps for possession it will issue a Judgment for possession. This Judgment then gives the mortgagee the right to possess and sell the property.
Possession
Once Judgment has been obtained the mortgagee is then required to obtain a Writ of Possession. This Writ is then forwarded to the Office of the Sheriff who will serve a Notice to Vacate. The Notice will provide a particular date in which the eviction is to take place. In the event that the mortgagor does not live in the secured premises and there is a tenant, the mortgagee is also required to issue a Notice to Vacate to the tenant and allow for a minimum of 30 days for the tenant to vacate the premises.
If more time is needed to vacate the premises it may be possible to have this time extended. This would be best done through a solicitor who can contact the mortgagee’s solicitors directly.
It may also be possible to apply for a Stay of all action. In order to request a Stay the mortgagor, or their legal representative, will need to prepare a Notice of Motion and an Affidavit in Support setting out the reasons for requesting a Stay. Any Stay granted by the Registrar will not be for an indefinite period and the mortgagor will need to attend the Court again to request any further stay.
In the event that there is no challenge to the Notice to Vacate the Sheriff will attend to the eviction and ensure that there is vacant possession of the property. It will then be a matter for the mortgagee’s solicitors to prepare the necessary documentation needed for a mortgagee sale of the property. If there remains a shortfall after the sale the mortgagor remains liable and the mortgagee is likely to issue further proceedings to recover the shortfall.
As can be seen there are a number of steps that need to be take before a mortgagee can obtain possession of a secured property. If you would like assistance with liaising with a mortgagee or responding to any notice or Statement of Claim please do not hesitate to contact Rankin Ellison.
