Bank justified in declining to discharge mortgage after lower than expected sale price

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Bank justified in declining to discharge mortgage after lower than expected sale price

Categories:

Concerns about lending decisions,

Summary:

Sloane had three loans on three properties, two of them rentals. She decided to sell one of the rentals and told the bank she planned to use the sale proceeds to repay two loans totalling $680,000. She asked if the bank would then discharge the mortgage over the remaining rental. The bank said she would have enough equity in the third property at that time to discharge the mortgage on the second rental, but that it would also need to be sure she could afford the remaining lending. The property sold some months later, but not for the price she had hoped, and the value of her third property had dropped. This meant there was not enough equity left in the third property to discharge the mortgage on the remaining rental. She complained that the bank had wrongly rejected her request and had failed to give her enough information to enable her to discharge the second mortgage or restructure her lending.

Published:

April 2025

Our investigation

The bank declined to discharge the second mortgage because that would have left her without enough equity to satisfy the bank’s lending criteria. The bank also wasn’t satisfied Sloane had the ability to service the remaining lending. She was receiving assistance from the bank's hardship team at that time because she couldn’t meet loan repayments as a result of a change in employment. There was nothing to suggest the bank had made any errors, and we found the bank had been clear with Sloane from the outset about what it would require to discharge the mortgage. The bank was also clear at the time of settlement that it could discharge the second mortgage if she repaid a further $20,000. We found the bank failed to respond to Sloane's request to speak to the bank's hardship team about this decision, but equally, we were sure a discussion would have made no difference to the bank’s decision.