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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.
