If you are struggling with making repayments on your mortgage there are steps you can take to get help.

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If you are unable to repay your mortgage, your lender has the right to issue default notices, and eventually, start a process that ends with the property being sold to recover the debt.

In Australia this process is usually called mortgagee possession. There is also a similar but slightly different process called foreclosure.

What is foreclosure?

Foreclosure occurs when a lender takes possession of a property after the mortgage holder fails to make repayments on a home loan. The sale of the property is to help the lender recoup the cost of the outstanding loan.

Foreclosure is where the lender goes through a legal process to transfer the title of the property from the homeowner (and borrower) to the lender. Once the lender has the title they then sell the property. This is a lengthy legal process. Your lender can't simply take the property title and sell your home if you've missed one repayment.

How does the foreclosure process work?

Any missed payments can result in a default notice. A lender can issue a default notice as soon as a repayment is overdue, although they will most likely wait 90 days.

A default notice typically gives you 30 days to make the missed payments, as well as any new repayments. At this stage you can still apply for hardship (more on this further down).

After failure to make repayments on the 30-day default period you can be served with a Statement of Claim or summons. At this point, seeking legal advice is useful as you are only given a set number of days to respond with either a defence or a dispute.

The final stage is an eviction where the lender can get a court order to repossess your home and issue you with a Notice to Vacate (sometimes known as a Sheriff's letter). At this stage you will be evicted from the premises by a sheriff or bailiff. You are still obligated to pay your loan, after which the lender can sell your home under foreclosure. If the sale of the property does not cover the entire balance of the loan the lender may take further legal action such as a claim to sell your other assets, like a car or boat.

How foreclosure differs from mortgagee possession

Mortgagee possession, or mortgagee-in-possession, is similar to foreclosure. But unlike a foreclosure in which the lender takes ownership of the property, a mortgagee possession is when the borrower can remain on the title while the lender sells the property.

In Australia, foreclosure is not overly common, as a mortgagee possession is often an easier and more cost-effective process. A lender can avoid getting a court order just to be put on the title deed, and instead leave the property in the borrower's name until the sale has taken place.

The two terms are often used interchangeably on websites listing properties for sale by a lender. And if you're trying to buy a foreclosed property, the distinction isn't that important.

What do I do if I can't repay my mortgage?

Get in touch with your lender early on as soon as a single payment is missed, or earlier if you anticipate having trouble making an upcoming repayment. All missed payments will need to be caught up on, possibly with a late fee included.

If you are likely to miss more than one or two payments, get in touch with your lender and ask about financial hardship and a hardship variation. You will need to explain your circumstances so they can best advise you.

There are also other steps you can take if you are struggling to repay your mortgage.

Can I sell before my lender forecloses?

Yes. You are allowed to sell your home prior to foreclosure as you are likely to get a better price than your lender. This also stops you facing any legal costs passed along by the lender.

You must let your lender know if you decide to sell, and seeking legal advice or speaking with a financial counsellor could be a good idea.

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