The Ex-Files: Mortgagee sales in the context of a separation

Mortgagee sales are on the rise - and pile on added stress after a separation. Photo / 123RF

OPINION

Mortgagee sales have been on the rise in New Zealand this year. This is unsurprising, with interest rates more than doubling from 3 per cent in 2020 to 7 per cent this year. The additional interest cost has put significant financial pressure on many homeowners and property investors.

I am seeing more clients in my practice who are in the predicament of facing a mortgagee sale after already dealing with the stress of a relationship breakdown. Lawrence von Sturmer from Ray White offers some pointers for couples in this situation:

1. Act quickly and collaboratively with an experienced property sales team rather than letting the bank set the reserve/sale price;
2. Set a fair reserve price based on a registered valuation or an average of appraisals by real estate agents;
3. Consider leaving the house vacant during the sale to remove possible interference by either party;
4. Leave personal feelings out of the decision-making process; treat it as a “business decision”.

Answers to some common questions in this scenario are set out below.

My ex-partner and I have not been able to meet our mortgage repayments for several months. The bank has already allowed us to have a “mortgage holiday”. What happens next if we still cannot pay?

If you remain in default of your mortgage repayments, the bank will likely serve you with a default notice under the Property Law Act 2007. This will specify the total amount you have failed to pay, together with any penalties. Once served, you will have 20 working days to remedy the defaults. If you fail to do so, the bank will likely proceed to sell your property to recover the money that you owe them. If the bank cannot recover the amount owed to them, you and your ex-partner will remain liable for the shortfall.

You and your ex-partner should maintain strong communication with the bank, and work with them to sell the property at the highest possible price. In some circumstances, the bank may be prepared to delay the mortgagee sale if you co-operate with them. It is worth engaging a property solicitor to seek further advice on this point, and possibly to assist with negotiations with the bank (if these are likely to be fruitful).

After my separation, I lodged a notice of claim on our investment property to protect my relationship property interest. Can the bank still sell the property at a mortgagee sale?

Yes, the bank can still sell the property at a mortgagee sale. I assume the mortgage was taken out prior to your separation and notice of claim. Because of this, the bank is entitled to exercise their rights under the terms of the mortgage. Your notice of claim would take priority over any subsequent drawings on the mortgage or other loans secured against the property. For this reason, lodging a notice of claim can be a good option in some circumstances.

My ex-partner does not want to list the property for sale, despite the risk of a mortgagee sale. Should I file court proceedings to seek an order that the property be sold as soon as possible?

Properties sold at mortgagee sales are often (but not always) sold at less than market value. This is because the selling conditions may not be ideal for the purchaser; the usual vendor guarantees and warranties are often not provided. As the owners of the property, you and your ex-husband would also have little, if any, say in how the property is presented and marketed. I would therefore advise you to get an order for sale from the Family Court (assuming your ex-partner continues to withhold their consent to the sale). The Family Court would likely be prepared to hear your application at short notice given the urgency of the matter.

My mum has offered to lend us some money to help meet the mortgage repayments. What protections would you suggest to ensure that she gets repaid?

To protect your mum, you should be confident that there are sufficient relationship property assets or cash to repay the loan. You will need to consider that the property may not reach its market value in a mortgagee sale.

A loan agreement should be prepared and signed by you both. It should confirm the usual details of the loan, including whether interest is to be paid. It should specify that the loan is to be treated as a relationship debt, despite being take out after separation. The loan should be repaid, including any interest that has accrued, before the relationship property assets are divided between you and your ex-partner.

The loan from your mum could be secured as a second mortgage against the title to the property but you would need the bank’s approval. When the property sells, the bank’s mortgage would be repaid first.

Jeremy Sutton is a barrister and family lawyer at Bastion Chambers.