Buyers may not realise that mortgagee sales usually differ from regular property sales and often pose a number of risks. Despite the appeal of these properties, the sales are often far more complex with a number of legal conditions. With some of the finest settlement agents in Perth, KDD Conveyancing Services understands all of those risks and can help ensure that the property conveyancing process is as seamless as possible.
What is a mortgagee sale?
If a property owner is unable to make payments on their mortgage, the bank or lender (mortgagee) can repossess the property and sell it.
How do mortgagee sales work?
When going through a mortgage application, the bank or lender will have the property professionally valued as this is what is used as security against the sum being borrowed.
When a property owner defaults on their payments, the mortgagee will give the adequate and agreed to notice ahead of taking possession of the property.
A real estate agent is then employed by the mortgagee representative to sell the property. The mortgagee in possession will typically spend as little money as possible to make the property presentable ahead of auction to ensure they have attempted to achieve the highest price for the property. The property is then sold via private treaty or by mortgagee auction where (usually) a 10% deposit is required on the day. The property is generally sold as-is, despite having possible defects, pests and structural issues.
What are mortgagee sale risks?
There is often an inherent lack of buyer protection in mortgagee sale contracts and a number of underlying risks which include:
Warranties: Mortgagee sales exclude warranties used in regular sales like for the electrical, gas and plumbing appliances to be in working order or obligations to handle any authority notices (clearing overgrown land or rubbish etc.)
Delays: Mortgagee contracts often allow the seller to extend for up to 90 days without negotiation, with the buyer unable to charge penalty interest for the delay. Delayed settlement by seller often means financial loss and added frustration for buyer when trying to move.
Outstanding Taxes: Settlements go ahead regardless of outstanding land taxes. Whilst the seller may still be responsible for tax payment; it may not a requirement upon settlement.
GST: Commercial property sale prices typically include GST, but mortgagee sales occasionally exclude it, which means an additional cost on top of the base price.
Builder’s Warranties: Mortgagee sales will often exclude builder’s warranties except when required by law on new or relatively new properties.
Boundaries: Buyers cannot claim compensation if boundaries are inaccurate and will be obligated to pay fencing costs if the mortgagee owns adjoining properties.
Removals: Mortgagees are often not obligated to remove items not included in the sale, leaving the buyers to organise and remove post-purchase.
Building & pest inspections: This is such a critical part of a mortgagee sale, most lenders will not accept an offer which is subject to building or pest inspections. As such, it is highly, highly advisable that buyers obtain these reports prior to submitting an offer so that they are fully aware of the physical condition of the property.
Where does this leave the buyer?
The allure of buying a mortgagee sale property is that you are unlikely to be paying a premium. But on the flip side, the mortgagee will have changed several standard sale conditions, making the sale more complicated, less flexible and with fewer obligations on their part.
Due to the nature of mortgagee settlement contracts, buyers are urged to make the necessary checks and inspections before making their offer. And whilst being aware of the possible risks is the best way to mitigate any losses, for total peace of mind, why not leave it to Perth’s top settlement agents.