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Mortgagee-in-possession sales explained

Learn how mortgagee-in-possession sales work, how to avoid them and how to buy these properties.

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What is a mortgagee in possession?

If a borrower can't repay their mortgage then their lender can take legal possession of the property and sell it. This is known as a mortgagee-in-possession sale.

It's a lender's last resort to recover a mortgage debt. For a homeowner facing mortgage default, a mortgagee-in-possession sale means losing your home. For potential buyers, a mortgagee-in-possession sale may represent an opportunity to purchase a property at a reasonable price.

Where do I find mortgagee-in-possession properties for sale?

Lenders don't usually advertise mortgagee-in-possession sales. However, you can contact local real estate agents or buyer's agents who may have the resources to track down mortgagee-in-possession properties on the market.

There are several websites listing forced sales, including:

The mortgagee-in-possession process

If you fail to meet your mortgage repayments as outlined by the mortgage contract, the mortgagee will typically issue a notice identifying that you are in default of the loan, and that you have a certain amount of time to resolve the situation.

There are several notice requirements that need to be issued by the mortgagee, ending ultimately with the lender applying to a court to seek orders for you to vacate the property and organise a sale.

Learn more about what happens when you can't repay your mortgage

How will the mortgaged property be sold?

By law, the lender must make a genuine effort to sell the property for the maximum possible amount. They have to advertise the sale, get independent valuations and decide whether to sell privately or at auction. The proceeds of the sale will be used to absorb any legal, administrative and holding costs incurred by the mortgagee in maintaining the property.

How can I avoid the mortgagee taking possession?

If you feel at risk of having your property taken over by the mortgagee and you’re struggling to meet your repayments due to a change in personal circumstances, or for any other reason, you should contact your lender as soon as possible to discuss your options.

Your options may include:

You can also read our guide on mortgage stress to get some tips on getting your mortgage repayments under control.

Are mortgagee sales a genuine bargain for buyers?

Mortgage in possession sales

The conventional wisdom suggests that mortgagee-in-possession, or "forced" sales are generally bargains because the lender is anxious to get rid of the property and recover their debts as fast as possible.

This is somewhat true, but the lender has a legal obligation to sell the property at the highest possible value. The lender will appoint an experienced real estate agent and a reserve will be set based on advice from the agent. The mortgagee is required to execute an adequate marketing campaign for the property so that they achieve the best sales result.

While you might find a mortgagee-in-possession property at a decent price it also depends on many other factors including the quality of the property itself, the location and market conditions.

What should buyers watch out for?

When buying a mortgagee-in-possession property you should get legal advice and have a solicitor review the contract terms, particularly any non-standard clauses which may represent a risk. These may include; the buyer's acceptance of the property in its existing condition; no warranties; no disclosure of hazardous substances; no disclosure of structural defects, and many others.

It’s also a good idea to get an independent valuation of the property to identify any hazardous materials or structural defects, and determine whether the property comes with unexpected costs such as unpaid council rates or strata fees.

As an investor, you should focus on the quality of the property itself as well as location considerations such as nearby infrastructure projects, transport hubs or schools. Consider all the other factors you would in buying any investment property, such as rental yields, property maintenance costs and future growth potential.

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6 Responses

  1. Default Gravatar
    sallyJuly 25, 2017

    I have just put in an offer for the full asking price of a house. The real estate agent has come back to me saying another bidder (who I know bid less than the asking price) and myself have been asked to put forward our best price . Is this legal? I thought it would go to us seeing as though we put in an offer for more and for the asking price? Now they want to auction us off against each other. thanks

    • Avatarfinder Customer Care
      RenchJuly 27, 2017Staff

      Hi Kathryn,

      Thanks for reaching out to us.

      You can check this page for helpful information and where you can compare dental insurances. You may fill out the form on the page and click on ‘Search Policies’.

      Please click on the ‘Go to Site’ or ‘Enquire Now’ button to inquire directly on your preferred insurer.

      Best regards,
      Rench

  2. Default Gravatar
    JeremyJune 5, 2017

    I just put in an offer of an advertised bank receivers home sale. Two days later, I was told bank hadn’t look at the offer. Instead the orginal owner paid his debt and the bank returned his property to him. Is this process common?

    • Default Gravatar
      DonnaJuly 16, 2017

      Is it legal for a realestate agent to “block”your written offer for a mortgagee in possession house? Our Lawyer faxed the offer straight to the mortgagee and when the agent found out she called and blocked the offer.

    • Default Gravatar
      JonathanJuly 27, 2017

      Hello Donna,

      Thank you for your inquiry today.

      Your answer depends on the sell-off agreement that you and the lender has and the local state regulations you have. Generally, the mortgagee should be informed about your counteroffer and communication should be open. You may refer this matter to your lender or to a property office for further review.

      Hope this helps.

      Cheers,
      Jonathan

    • Default Gravatar
      JonathanJune 7, 2017

      Hi Jeremy!

      Thanks for the comment.

      Your question is dependent on the clause of the signed mortgage agreement between the bank and the client regarding mortgagee in possession. Banks/lenders usually retain their rights whether to immediately accept an offer from a prospect buyer or give the client an opportunity to meet their obligations, as long as no papers have been signed yet for final possession.

      We have included on our page of dealing with mortgage brokers and banks. Alternatively, you may reach out to mortgage specialist for further assistance.

      Hope this helps.

      Cheers,
      Jonathan

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