Mortgage Sales: Lenders New Duties to Take Reasonable Care
Lenders and their agents need to comply with new obligations to take reasonable care when the Lender is exercising its power of sale under a registered Mortgage.
The new laws started on 1 November 2011 and require Lenders to take reasonable care when exercising their power of sale to ensure a property is sold for not less than its market value or for the best price that can reasonably be obtained in the circumstances.
The obligation applies to mortgage sales arising as a consequence of a Borrower’s default after 1 November 2011, even if the mortgage was created before then.
The obligation is imposed on Lenders, agents of the mortgagee or chargee appointed to sell the property, as well as real estate agents, consultants or others appointed by the Lender.
Mortgagees should take the following steps:
Obtain a professional independent valuation of the property;
Advertise the property, including details about the mortgaged property, to the largest possible group of potential purchasers;
Leave the property on the market for a reasonable period of time. This usually involves allowing time to advertise adequately and provide sale information to a reasonable number of prospective purchasers, and allowing time for inspection and assessment of the property; and
Where available, conduct an Auction of the property it’s the best way to test the market.
If the duty is breached, the Borrower can sue. But breach of the obligation is not a ground upon which the Borrower can challenge the purchaser’s title (i.e. ownership) to the property (if the purchaser is bona fide).
If you are a Lender or Borrower concerned about breach of these duties, please contact our Conveyancing & Property Law Team.