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Mortgagee in Possession Sales

Learn about mortgagee in possession sales and your finance options.

No obligation. It wont affect your credit score.

Written by , updated on August 7th, 2023

What are mortgagee in possession home sales?

A mortgagee in possession sale is an event in which a bank or lender sells a repossessed property that has been foreclosed or defaulted on. In this situation, a bank or lender wishes to reclaim any losses they have incurred due to missed payments and the amount owing on the loan. This is usually the “last resort” option to recover owed money.

This has numerous advantages for would-be homeowners as financiers typically want to sell the property as quickly as possible, which may result in lower than market rates for buyers.

What approval options are available to me?

Buyers looking to invest in mortgagee in possession sales can apply for basic home loans with fixed or variable rates. If you have less than a 20% deposit, you may have to pay for Lenders’ Mortgage Insurance. Before applying for a mortgage, remember to check your credit score, gather all relevant financial documents, and supporting evidence to enhance your chances of approval.

Where can I find mortgagee in possession sales?

Real estate websites and trade magazines may advertise mortgagee in possession sales or distressed sales in their headlines. You may be able to find mortgagee in possession sales by using it as a key phrase in search. However, this is not common.

Sometimes, having a good relationship with a real estate agent who may specialise in Mortgagee in Possession or distressed sales can give you options to look for homes that fit the description in a variety of locations.

Trovit, and Mitula are the leading websites advertising forced sales in Australia.

Tips to consider before entering mortgagee in possession sales

Get legal advice

When entering mortgagee in possession sales, it’s best you gain as much legal advice as you can. Contract terms may contain non-standard clauses which you should look out for. This may be acceptance of the property in its existing condition, no warranties, no disclosure of hazardous substances or structural defects, and other caveats.

Get your own evaluation

Though a lender will have to obtain a valuation of the property, you should also get an independent valuation of your own. Sometimes hazards and other structural damage will turn up. You may also have to pay for strata fees or overdue council rates.

Is the quality any good?

Since mortgagee in possession sales are rushed sales and not done in the usual way – where a vendor wishes to get the maximum price possible to fund another home elsewhere – it’s possible that the home may be in disrepair or damaged. As always, you need to consider if you’re willing to take on a “fixer-upper”, whether amenities such as transport and schools are nearby, if the infrastructure is sound, and whether there is growth potential in the property, if you are looking to buy as an investment.

Your questions about mortgagee in possession sales answered

What is collateral?

In a mortgage, a bank or lender holds the Certificate of Title to a home as a security against the mortgage, also known as collateral. This collateral is held against the mortgage until the balance is paid off. In the event of non-payment or default, the bank or lender is entitled by law to take possession of the Certificate and property it relates to.

What is a repossession?

Repossession is the act of taking over the Certificate of Title or ownership of a home after a mortgage holder defaults. The process of repossession begins when an asset loan, in this case a home loan, is officially in default. This can take up to four-months if the arrears are not paid up. At the end of this process, banks initiate legal proceedings against the owner to take possession of the property.

What about tenants? Will I be “buying from under them?”

No. By the time a mortgagee in possession sale process has started, the previous owners/occupiers will have vacated the property by court order.

What is a distressed sale?

A distressed sale is similar to a mortgage in possession sale except the homeowner initiates the sale instead of the bank or lender. Homeowners may negotiate a “distressed sale” with their bank or lender if they believe their financial position will not improve and wish to clear the debt. At this point, the house is not repossessed by the mortgage lender.

Is mortgagee in possession the same as an estate sale?

No. Estate sales occur when the occupant has died and instructed a sale in their will, or their survivors or heirs cannot agree on the disposition of a property. Estate sales may also occur if heirs are required to take on a mortgage and associated costs and wish to dispose of the property instead of taking on the debt.

Can I get a mortgage on a mortgagee in possession sale?

Yes, we offer competitive mortgage packages for homes being sold at mortgagee in possession sale.

Will I owe money to the bank if the house sells for below what is owed?

No. The bank or lender holds all the power to market and sell the property and the previous homeowner, nor the future homeowner, is obligated to cover any costs relating to the mortgagee in possession sale. There are also no powers on either side to delay a sale, postpone a sale, or wait for better market outcomes.

Is Mortgagee in possession sales always cheaper than mainstream sales?

Not always. By law, a lender must make all available efforts to sell the property for the maximum possible value. They must advertise the sale, gain independent valuations, and decide whether it will gain more through a fixed price sale or through auction. The sale must also absorb any legal, administrative, and upkeep costs the lender has taken on since possessing the property.