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The Dark Side of Mortgagee Sales

Mortgagee sales provide an opportunity for some buyers to potentially “grab a bargain”. However, buyers should not be blinkered by potential profits and need to remain vigilant, as the risks attached to mortgagee sales may be significant.

Differences in Agreements

Agreements used in mortgagee sales usually differ from standard Sale and Purchase of Real Estate Agreements whereby amendments are made to greatly favour and protect the mortgagee. For mortgagee sales, vendor warranties that are contained in standard agreements are usually removed, as is the obligation to provide vacant possession. There have been cases where previous owners or tenants have refused to vacate the property even though it has been sold. In such situations, the issue of removing unlawful occupiers becomes the new owner’s problem.

Removing Unwanted Occupiers

The options for removing unwanted occupiers include obtaining and enforcing a trespass notice pursuant to the Trespass Act 1980 and/or a possession order pursuant to the Residential Tenancies Act 1986 (‘the Tenancies Act’). Section 65 of the Tenancies Act provides that a legal owner of a property can apply to the Tenancy Tribunal for a possession order that can then be enforced to evict unlawful occupiers. While in theory the process seems straightforward, the reality remains that whilst the buyer is obtaining a possession order, the risk of the property being damaged by the unlawful occupants is significant.

Protection Against Damage

Mortgagee sales often leave behind disgruntled previous owners and it is not uncommon for properties to be vandalised after the mortgagee has sold the property and prior to possession. Obtaining insurance cover for the property upon signing the agreement for its purchase is therefore highly recommended. If purchasing at auction, insurance should be arranged before bidding so that insurance cover is effective immediately upon sale.


It is important to note that chattels (such as stoves, light fittings, curtains and carpet) are not included in mortgagee sales. This means that the previous owner is well within their rights to remove such items from the property, as they retain ownership of the chattels despite the mortgagee sale.


The lesson here is simple - know the terms of a mortgagee sale well and be aware of the risks. There are numerous other matters that a buyer should be conscious of beyond those discussed above. It would be wise to consult a lawyer prior to signing the purchase agreement - particularly when dealing with unit titles or cross leases. Doing so may prove a worthy investment considering the potential headaches it could save in the future.

If you have any questions regarding sales and purchases of property, whether mortgagee or otherwise, please contact Mike Newdick, Jane Min, John Stirling, or Raechel Pedrotti of this office.

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