Five risks to consider when buying a home through a mortgagee sale

As interest rates rise, it’s possible New Zealand will experience an increase in ‘mortgagee sales’, which presents both opportunities and risks for buyers.

A mortgage sale is when a borrower defaults on their mortgage, causing the lender (i.e. the mortgagee) to seize and sell the property.

For buyers, the big upside to acquiring a home through a mortgagee sale is that you might be able to secure it for a cheaper price than if you bought it in the conventional way.

But there are also five risks to consider, according to

1. The home is being sold against the owner’s wishes. So the owner might refuse to let you view the property or conduct a building inspection.

2. The owner can repay their mortgage before settlement, and the property can be removed from the market at any time.

3. The lender doesn’t have to guarantee the property will be vacant, which means the owner might refuse to leave the home after settlement. If that happens, you will be forced to take steps to evict the owner.

4. The lender doesn't have to guarantee the quality of any chattels (e.g non-permanent items such as fridges, washing machines and ovens) that are part of the sale.

5. The lender doesn’t have to provide any warranties or supporting documentation for anything relating to the building, fixtures or fittings.

Buyer beware

Given those risks, advises buyers to proceed with care when it comes to mortgagee sales.

"In a mortgagee sale, sale conditions will be set out in the sale and purchase agreement. The real estate agent should explain how they differ to normal terms and conditions, disclose any known issues with the property to you and recommend that you seek legal advice on the terms of the sale and purchase agreement,” according to

“We highly recommend asking your lawyer or conveyancer to review any documents provided to you or that you have obtained (such as a LIM report or record of title) to help you to understand what is in the documents and what it will mean for you. With a mortgagee sale, it is even more important to do your due diligence, seek legal advice and understand the risks associated with the sale.”

Whether you want to buy a property through a mortgagee sale or the conventional way, it’s important you get a pre-approval before you make an offer. Contact me for help.