Buying a property at a mortgagee sale can be risky. However, you can manage that risk by being careful and taking certain precautions.
The terms for the mortgagee sale are contained in the particulars and conditions of sale. These conditions of sale generally include, among other things, provisions that:
- you cannot object to the title as in a normal sale and purchase process, i.e. you accept the title “as is”. Accordingly, you will need to check the title before going to the auction and ensure it is in order or acceptable to your needs.
- the chattels are generally not included in the sale and you run the risk that they can be removed at any time up to the settlement date by the defaulting owner of the house.
- the conditions do not provide for vacant possession so that any sale to you is subject to “holding over by the defaulting owner”. In that instance it is left to you to arrange vacant possession of the house once you have settled your purchase. This can involve obtaining an order for possession and will take time. You will need to consider that during that time damage may be done to the house.
- sometimes the risk in the house passes to the Purchaser of the house on the fall of the hammer. In that instance you should ensure that your insurers will be able to insure the house immediately once you have purchased it. The downside is that more often than not most insurers are not willing to do this until you actually own it.
In these circumstances you should check in advance with your insurer if they can provide you with cover at the fall of the hammer rather than on settlement. Generally however the risk remains with the mortgagee selling the property until you settle the purchase.
The main lesson is to do your homework on the property before you go to auction, even in the knowledge that after all of that effort your bid may not be successful.
The upside is that if you are the successful bidder, you may have bought yourself a bargain. That’s the risk you take.