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What is a Mortgagee in possession in NSW?
In New South Wales (NSW), when a borrower defaults on their mortgage, the lender (the mortgagee) may take possession of the property to recover the outstanding loan amount. This legal process is known as “mortgagee in possession.” It allows the lender to take control of and sell the property to recoup their losses.
Understanding mortgagee in possession is crucial for homeowners, buyers, and investors, as it has significant legal and financial implications.
When Does a Lender Become a Mortgagee in Possession?
A mortgagee may take possession of a property when a borrower defaults on their loan repayments and fails to remedy the default. The process generally follows these steps:
- Default on Mortgage Payments – The borrower fails to meet the required loan
repayments. - Default Notice Issued – The lender issues a default notice under the National Credit
Code, providing the borrower with at least 30 days to rectify the default. - Court or Power of Sale – If the borrower does not remedy the default, the lender may
seek a court order or exercise their power of sale under the mortgage agreement. - Possession and Sale – The lender takes control of the property and sells it to recover the
outstanding debt.
Legal Obligations of a Mortgagee in Possession
Even though a lender has legal rights over the property, they must comply with strict obligations, including:
- Obtaining a Fair Sale Price – The mortgagee must act in good faith to obtain the best possible price for the property.
- Notifying the Borrower – The borrower must be kept informed about the possession and sale process.
- Following Proper Procedures – The sale must comply with NSW property and financial regulations.
What Happens to the Borrower?
Once the lender takes possession of the property, the borrower loses control over it. However, if the sale price exceeds the loan balance and associated costs, the borrower may be entitled to receive the surplus funds. Conversely, if the sale does not cover the outstanding debt, the borrower may still owe the lender the shortfall.
Buying a Mortgagee in Possession Property
Properties sold under mortgagee in possession conditions often attract investors and buyers looking for opportunities. However, buyers should be aware that:
- The property is typically sold “as-is,” meaning there may be limited warranties or
guarantees. - The former owner may still be in occupation, potentially leading to legal complications.
- Conducting thorough due diligence is essential before purchasing.
How ALA Law Can Help
Navigating mortgagee in possession matters can be complex, whether you’re a borrower facing repossession or a buyer considering purchasing such a property. ALA Law provides expert legal advice on mortgage disputes, property law, and real estate transactions in NSW.
If you need assistance, contact ALA Law for professional guidance on your legal options.
Property/Conveyancing
What Are the Risks in Buying a Mortgagee in Possession Property in NSW?
If you haven’t already read our blog on Mortgagee in Possession Property in NSW head here (internal link.) to understand what a mortgagee in possession is and what the obligations are. In this blog we consider the risks in buying a property that is a mortgagee in possession sale.
Buying a mortgagee in possession property in NSW can seem like a great opportunity to secure a home or investment at a lower price. These properties are often sold by lenders after a borrower defaults on their mortgage.
However, while the potential for a bargain is appealing, there are several risks that buyers should be aware of before proceeding with a purchase.
Unlike standard property sales, mortgagee in possession properties are sold without warranties or guarantees. This means:
- The lender does not guarantee the condition of the property or confirm that all structures are compliant with building regulations.
- Any repairs, maintenance, or legal issues become the buyer’s responsibility after settlement.
In essence: you get it as it is, and you can’t complain if there are issues!
In some cases, the previous owner or tenants may still be residing in the property even after it has been sold. This can lead to:
- Eviction proceedings, which the buyer may need to handle.
- The risk of damage or vandalism before settlement if the previous occupants leave on bad terms.
The risk: you’ll own a property with BIG legal issues which will cost significant legal fees to
rectify.
Buyers may not have the same access for property inspections as they would in a standard sale. This can make it difficult to assess:
- The full extent of structural issues or damage.
- Whether there are unauthorised alterations or legal complications tied to the property.
The Risk: is that the property may have major structural defaults which renders it uninhabitable
or requires expensive remediation works.
While a mortgagee in possession sale should clear most debts attached to the property, buyers need to ensure:
- The title is clean and free from encumbrances such as caveats, council orders, or unpaid strata levies.
- There are no heritage restrictions or zoning issues that could impact future use or development plans.
- Some properties may have outstanding council rates, water bills, or strata levies, which buyers could be liable for.
- Buyers may have limited recourse if an issue arises post-settlement, as lenders often exclude liability in contracts.
- Standard legal protections, such as vendor disclosure obligations, are often reduced or removed in mortgagee in possession sales.
- Mortgagee in possession properties are often targeted by savvy investors, increasing competition at auctions.
- Prices may be driven higher than expected, reducing the perceived discount.How to Protect Yourself When Buying a Mortgagee in Possession Property
To reduce risks, buyers should:
- Conduct thorough due diligence – check title searches, council records, and strata reports.
- Engage a property lawyer to review the sale contract and any special conditions.
- Arrange for a building and pest inspection (if possible).
- Budget for unexpected repairs or legal issues.
How ALA Law Can Help
At ALA Law, we assist buyers in navigating the risks of purchasing a mortgagee in possession property. Our team provides contract reviews, legal due diligence, and advice on title and property risks to help protect your investment.
If you’re considering purchasing a mortgagee in possession property in NSW, contact ALA Law for expert legal assistance.
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