15 Mar 2012
Mortgagee sales are among the most stressful of situations facing people who ask for our help. It is possible to stop to a sale right up to the last minute but usually only if you can find the necessary money in time.
We have prepared this guide for customers and their advisers, to help you decide whether there is something we at the Banking Ombudsman Scheme can help you with. To do this, we have covered some of the most common questions and answers. We have also given information about the mortgagee sale process, what to do if you find yourself in difficulty repaying your housing loan and who else you can turn to for help.
Our best advice, however, is to try and address financial difficulties early so that you can prevent a mortgagee sale, and to talk to your bank and your financial advisor/lawyer about your options.
A mortgage is security for a loan. This means that if you have a mortgage and you can no longer meet your repayment obligations, your banking service provider is able to sell that security (usually property) to get its money back. This is known as a mortgagee sale.
If you’re struggling with your finances, the best thing to do is to contact your banking service provider as soon as possible. The earlier you make contact, the more it may be able to do to help.
If you’re not already behind in your loan repayments, you’re entitled under the Credit Contracts and Consumer Finance Act to ask your banking service provider for a change to the terms of your contract to help you meet your obligations. This might include getting a mortgage holiday or decreasing the amount of your repayments, but increasing the length of your loan.
It’s useful to bear in mind, however, that these solutions only offer temporary relief: they will actually increase what you owe in the long run. You can read more in our Quick Guide on Hardship and financial difficulty. It is also useful to know that your banking service provider does not have to agree to your request.
If you fall behind in your loan repayments, contact your banking service provider and be upfront and honest. Ask whether it is prepared to enter into a repayment programme with you.
If you have missed one or two repayments, do your best to meet the ongoing payments. Your bank is likely to ask you to complete a statement of position and it is in your interests to do so. A statement of position shows your income and expenses and gives your banking service provider an indication of whether or not you can afford to enter a repayment programme. Budget advisers can help you with this, and may talk to your banking service provider on your behalf.
Make sure you return phone calls from your banking service provider and keep a record of who you talk to and when. If you think a banking staff member is being unprofessional, raise your concerns with his or her manager.
If you and your banking service provider are not able to come to some arrangement to meet your loan obligations, it may then issue a letter of demand.
A letter of demand is the first formal step in the debt recovery process. It will advise you of the amount you owe in arrears and demand payment by a certain date.
If you can possibly pay the arrears, do so. Try also to continue making your ongoing loan repayments.
Talk to your banking service provider. If your file has been transferred to the bank’s debt management department, you are best to contact the debt management department and not the branch.
It is not too late to talk about a repayment programme if you haven’t done so already. If your banking service provider is not prepared to enter into a repayment programme, you may like to consult a lawyer for advice about your options, including selling your house or refinancing your lending with another bank.
If you don’t repay the arrears advised in a letter of demand, your banking service provider may issue a Property Law Act (PLA) notice. A PLA notice states that you are in default under your mortgage because you have failed to pay the amount in the letter of demand. The PLA notice will tell you the amount you need to pay by a certain date, a minimum of 20 working days after the PLA notice is issued.
You will need to:
If you cannot pay the arrears:
If you do not pay the full amount owed in the PLA notice, including costs, your banking service provider has the legal right to sell your property as mortgagee.
Under the Property Law Act, the mortgagee (your banking service provider) owes the mortgagor (you) a duty of reasonable care to obtain the best price reasonably obtainable at the time of sale. In practice, this means that before selling a property under mortgagee sale, a banking service provider will usually:
During the sales process we recommend you co-operate with the valuer and the real estate agent, allowing them access to the property, so they can do their job.
If you’re struggling with your finances, there are a number of places you can go for advice:
You should also talk to your banking service provider.
If you were to do this, you would still be liable for all the costs associated with the loan as well as all the costs to do with the property, such as rates, insurance and maintenance.
If the property sells for less than you owe, your banking service provider will expect you to repay the shortfall. Your loan is secured by a mortgage over the property. It is also secured by your personal obligation to repay the debt. Even if the mortgage is discharged, your personal obligation remains until you have fully repaid the debt.
As long as the sale price was the best price reasonably obtainable at the time of sale, your banking service provider can sell your house for less than you owe, leaving a residual debt. Your banking service provider does not have to set the auction reserve at the amount you owe.
If you still owe the bank money after the property is sold, your banking service provider will ask you to repay this debt. You may be able to enter into a repayment agreement for the remainder, but if you cannot, your banking service provider may take recovery action against you which could ultimately result in your bankruptcy.
If you have a fixed interest rate loan and repay that loan before the end of the fixed rate period for any reason, including forced sale, your banking service provider has the right to pass the early repayment cost on to you.
You can read more in our Quick Guide, Early repayment costs on fixed rate loans.
As long as the valuation was provided by a registered valuer, we’d be likely to conclude it was reasonable for the banking service provider to rely on that valuation when accepting an offer to buy the property. However, if the banking service provider was aware of a significant factor that meant the valuation could not be relied on, we would take this into account.
If you have a complaint about the registered valuer, you can also complain to the Valuers Registration Board.
A loan agreement allows a banking service provider to pass the valuation cost to you, however the valuation belongs to the banking service provider. In practice, banking service providers will almost always give their customers a copy of the valuation.
As long as your banking service provider can show that the real estate agent followed a reasonable marketing plan, that the property was appropriately advertised and was reasonably available to potential purchasers, we’d be unlikely to conclude there was a problem in the sales process.
It is legitimate for a property to be advertised as a “mortgagee sale”.
If you have a complaint about the real estate agent, you can complain to the Real Estate Agents Authority.
Your banking service provider does not have to wait to sell your house. Once the PLA notice has expired unremedied, your banking service provider has the legal right to sell your house.
Your banking service provider does not have to improve the property to increase its value.