Mortgagee in possession sales
Are you a homeowner struggling to keep up with your payments? Are you a buyer tempted by what you’ve heard is a good way to obtain a new property at a discount price? Either way, you will need to understand just what a mortgagee in possession sale is and how it works, as this could make all the difference to your long-term financial well being.
What happens if you default on your payments?
When taking out a loan of any kind it’s advisable to leave yourself some leeway with repayments. Don’t make them as high as you can afford because you never know when your circumstances may change. Even if you’re very careful things can come out of the blue that make it impossible to keep up. When this happens you could face repossession – your lender will sell your property and you would be forced to move out.
Negotiating with your lender
If you’re worried that you might not be able to meet your payment obligations, the first thing you should do is talk to your lender. The more honest you are about your circumstances, the better they will be able to help, and it is almost always in their financial interest to find a solution other than selling your home. They may be able to give you a payment holiday or refinance the loan so that you make smaller monthly payments over a longer period of time.
What does losing your home involve?
If your payments are overdue, your lender will start sending you a series of notices asking you to discuss the situation or find a way to pay what you owe. You will normally have a few months in which to sort things out. If you fail to do so, the process will escalate and you will be asked to pay off all the rest of your loan at once. If you don’t do this, your lender will seek a court order forcing you to leave your home so that it can be sold.
How do mortgagee in possession sales work?
After taking possession of properties in this way, lenders employ sales agents that are obliged to get the best price possible for them. After a sale has been made, associated costs have been covered and the lender has reclaimed what they are owed, any remaining money will be returned to the borrower. This is unlikely because the sale of the property often does not cover the debt. It is difficult to get a good price for a property like this because of the urgency of the sale, and they typically sell for 5 per cent to 10 per cent under market value.
Why buy a mortgagee in possession property?
Buying a mortgagee in possession property can make it possible to save money, but the speed of the sale, usually conducted at auction, means that buyers will already need to have their finance in place. They will also need to pay careful attention to any unusual clauses in the contract, as this will often be more complex than in a traditional sale. The initial costs for buying a property in this way are often higher but buyers are likely to recoup their costs and save money over the long term.