If you fall behind on your mortgage repayments or default on your home loan, your bank may ultimately take possession your home and sell it to pay out your loan. This can be a stressful time for individuals and families, and it is important to understand the process and what rights you have as a borrower.
What is the process?
Your bank must not take action against you unless you have been provided with a default notice that contains certain information. A default notice should, among other things:
- Outline what action you need to take to fix the default;
- Give you at least 30 days to fix the default, usually by paying the overdue amount;
- Inform you of your right to lodge a hardship notice if there is a reasonable cause for you falling behind on your loan (e.g. illness, family breakdown, job loss) and ask your bank for a repayment arrangement; and
- Inform you of your right to lodge a postponement request asking your bank to delay taking action against you.
If you pay the overdue amount within the set time, your loan will continue as normal. If you do not pay the overdue amount within the set time, the bank will usually apply for a court order to take possession of your home. Once a court order is obtained, you will receive a letter telling you to move out before a Sheriff comes to change the locks on a specified date.
It’s important to note that a bank cannot take possession of your home without the court’s permission if the amount owing is less than 25 per cent of the amount borrowed under the loan, or less than $10,000, whichever is less.
Duty to act in good faith
You can expect your bank to act in “good faith” and have regard for your interests when selling your home. However, you cannot expect your bank to place your interests above their own in recovering the debt. For example, your bank may choose to sell your home at any given time, even if the home would get a higher price if the sale was postponed to a later date. Your bank can also choose to sell your home privately or at public auction, regardless of your preference.
Selling below market value
You can expect your bank to take reasonable steps to obtain a fair price or market value for your home. Your bank may be disregarding your interests if it failed to consider how the property should be advertised, didn’t allow enough time for advertising, or simply sold your home for a price that covered the amount of the loan.
You can also expect your bank to obtain a proper and current expert valuation of the property. If your bank fails to do this and the property is sold below market value, you may be entitled to compensation. For example, in a recent Queensland Supreme Court case, a lender repossessed a property that was valued at $225,000 in December 2002. In April 2003, the lender sold the property for $240,000 but had not obtained an updated valuation or any information about market trends. The Court found that the market had increased significantly during the 5-month period and there was a $53,000 difference between the sale price and market value. As a result, the borrower was awarded compensation.
More than one property
Where multiple properties have been repossessed, you may tell your bank which properties you would prefer it to sell, so long as it is certain that the sale of your preferred properties will be enough to discharge your mortgagee. If your bank sells a property outside your preference, it may be acting in bad faith.
How we can help
Slater and Gordon can help you by:
- Advising you about any action taken against you by a bank;
- Advising you of your rights if your property is repossessed; and
- Taking action against your bank if they sell your property below fair or market value.