What is a mortgage in possession?
A mortgagee in possession is a legal term that refers to a situation where a lender, who has a mortgage or security interest over a property, takes possession of that property after the borrower defaults on the mortgage repayments. In other words, a mortgagee in possession is a lender who has the legal right to take possession of the property that is secured by the mortgage
Finding yourself in a position where you can no longer make your home loan repayments on time can be a stressful situation to be in. It’s always important to communicate with your lender if you are in this position to try and work out an alternative solution.
If there is no communication attempts between you and the lender and you keep missing repayment, the lender may decide that they need to take possession of your property to pay the remaining balance of your home loan. This is usually the last step and lenders have a number of other steps and processes to take before taking your home.
When you find yourself in a situation where you can no longer make your home loan repayments
It’s important to communicate with your lender, and let them know you are having challenges -or might miss a payment– they can often help you by exploring options for financial assistance.
Lenders may offer options such as:
- A repayment holiday, where you can temporarily pause or reduce your loan repayments.
- A loan restructure , where the terms of your loan can be adjusted to make it more manageable.
- Financial Hardship Assistance, some lenders may have financial hardship support to develop tailored solutions to help your individual circumstances.
What are the steps of the mortgage in possession process?
The first step a lender will need to take after you have missed more than 90 days of home loan repayment is to issue you with a default notice.
The default notice usually gives you 30 days to make up the payments you have missed plus the regular payment on your homa loan.
It’s a good idea to consider looking into applying for financial hardship relief with your lender if they offer it at this stage. Since the pandemic, many lenders have set up financial hardship relief programs or services to assist customers with their repayments, consider speaking to your lender about your situation and don’t ignore the default notice. Being transparent and communicating with your lender can give you more options and a sense of relief when it comes to making your home loan repayments on time.
After the 30 days default notice period ends
If you have not made any communication attempts or any payments to your lender after the 30 days since receiving your default notice, your lender may start to take legal action against you, this next step includes your lender providing you with a statement of claim or a summons.
Once you receive your statement of claim, you have a set number of days to seek legal advice, file a defence or lodge a dispute against your lender. It’s important to note that the number of day is different depending on which state or territory you live in.
If no action is taken on your behalf, your lender will obtain a court order to repossess your home to pay off the outstanding loan amount. You will be provided with an eviction notice which the local Sheriff will provide to you and evict you from the property and also changing the locks so you can’t get back in.
Your lender will then sell your home to pay off the outstanding amount on your loan, if the home sale does not cover the total amount owing, your lender will then take further legal action which may include selling any other assets you may have to cover the remaining balance.
This process is definitely stressful and can impact your mental health, it’s important to not ignore your lender and be as transparent and communicate openly about your financial situation. Your lender will usually do everything they can to make it easier for you to make the repayments, don’t be afraid to ask for help.
How to avoid mortgagee possession and protect your assets?
The most serious consequence of late home loan repayments is the risk of mortgagee possession. To avoid Mortgagee possession and protect your assets, it's essential to address late payments as soon as possible. If you're having trouble making your repayments, you can take the following steps:
- Communicate with your lender: If you're having trouble making your home loan repayments, it's important to communicate with your lender as soon as possible. They may be able to offer options to help you get back on track.
- Explore options for financial assistance: There are various options available for borrowers who are experiencing financial hardship, such as a repayment holiday, loan restructuring, loan modification, or financial hardship. These options can help to make your loan more manageable and reduce the risk of foreclosure.
- Seek professional advice: If you're having trouble making your home loan repayments, it's a good idea to seek advice from a financial counselor, mortgage broker, or legal professional. They can help you understand your options and guide you through the process.
- Keep records: Keep records of all correspondence and documents related to your loan, including any agreements or options for financial assistance you have with your lender. This will help you to stay organized and provide evidence in case of any dispute.
- Take preventive measures to relieve mortgage stress: To avoid mortgagee possession and protect your assets, it is also important to take preventative measures such as budgeting, saving, and avoiding unnecessary expenses. This will ensure that you are able to make your loan payments on time and avoid any potential financial hardships.
Does buying a mortgagee in possession property mean a cheaper sale price?
Buying a property that is being sold by a mortgagee in possession (MIP) may or may not result in a cheaper purchase price. While it's true that MIP properties are often sold at a discount compared to their market value, this isn't always the case.
When a lender takes possession of a property, they will typically try to sell it as quickly as possible to recover their outstanding debt. In some cases, they may be willing to sell the property at a lower price to speed up the sale process. This could result in the property being sold for less than its market value.
However, in other cases, the lender may set a price that is close to or even higher than the property's market value. This may occur if the lender believes that the property is in a desirable location, has unique features, or has potential for future appreciation.
Additionally, MIP properties may have additional costs that buyers should consider. For example, the lender may require the buyer to take on any outstanding property taxes, homeowners' association fees, or maintenance costs that were not paid by the previous owner. These costs can add up and should be factored into the buyer's calculations.
It's also worth noting that buying an MIP property can come with its own set of risks and challenges. The property may have been neglected by the previous owner, and the lender may have limited knowledge of its condition. Buyers should conduct a thorough inspection and due diligence process before making an offer on an MIP property.
In summary, buying a mortgagee in possession property may or may not result in a cheaper purchase price. It's important to conduct research, consider additional costs, and weigh the risks and rewards before deciding to purchase an MIP property.
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*The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Joust recommends that you consider whether it is appropriate for your circumstances. Joust recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.