Today’s property market is a rat race – competitive, stressful and getting more expensive by the minute. If you’re desperate to get on the property ladder, it’s understandable that a mortgagee sale – which likely comes with a lower price tag – may sound appealing. But, while you might think you’ve scored a bargain, mortgagee sales can come with huge risks – and you could find yourself in a very sticky situation.
What is a mortgagee sale?
A mortgagee sale happens when a homeowner can’t keep up the regular mortgage repayments to the bank. After a time, the bank (aka the mortgagee) will seize the property and sell it to recover any debt owed.
This is a loss for the owner and the bank. It’s not a good look for the bank – it misses out on years of potential interest payments, plus costing time and stress. The homeowners could lose all their money made on the home, and they’ll deal with the stigma of a mortgagee sale.
That’s why banks will usually do everything they can to solve the problem before resorting to a mortgagee sale – like giving the owner the chance to sell the house first. Because of this, mortgagee sales are rare.
Here are the risks you need to be aware of.
Pictures don’t always paint a thousand words
In most cases, you won’t get to see the house before you buy it. If the current owners are in denial about the sale – or actively fighting it, which is often the case – they probably won’t allow any open homes and you’ll be buying the house sight unseen.
Purchasing property based on photos alone isn’t reassuring or sensible. Photos can be deceiving – you’ll miss things that can only be experienced in person – the smell of mould, wonky floors or loose fittings. But once you’ve signed the paper, it’s yours – and there’s no going back, even if the house isn’t up to scratch. It’ll be up to you to do as much research as you can, but even then, there’s no guarantee what state the house will be in when you take possession.
Your home might be damaged
If it’s been a rough exit for the previous owners, they may be feeling hostile. It’s not unusual for departing owners to take out their anger on the property – kicked-in walls, broken windows, soiled soft furnishings and even fire and smoke damage. As unfair as it may seem, you’ll probably have to foot the bill and deal with the inconvenience of waiting for repairs. You could seek legal action, but it’ll probably be more hassle than it’s worth.
There’s no guarantee your new house will be empty when you take possession. When the bank sells a house in a mortgagee sale, the current owners are only given four weeks’ notice. So on moving day, previous owners or tenants may still be occupying the property – and you’ll have to evict them or go through a court order. Not the best welcome-home moment.
Chattels may not be there
Many homeowners who have purchased via a mortgagee sale find normal chattels have been removed – light fittings, curtains and even carpet. If this happens, you could be faced with the huge unforeseen expense of replacing everything.
Do your research before you act
In such a hot property market, a mortgagee sale may seem like a bargain and you might be tempted to take the leap. Though they usually come with a much lower price, they also come with greater risk – and if you’re not aware of this, it could cost you time, hassle and money. Think before you act, and remember – cheap doesn’t always equal good.
Looking to buy a home? With years of experience in the industry, Global Finance can help. Talk to us today to discuss your options.
**These are general guidelines and are by no means a reflection of bank or lending policies