If you have taken out a mortgage, you must know the repercussions of not making your due mortgage payments. A mortgagee in possession is one of the many unfavorable situations that you could face if you default on your mortgage payments.
In this article, we will explain the situation of “mortgagee in possession” and also recommend ways to handle such cases.
What is the role of a mortgagee and a mortgagor in a mortgage agreement?
An individual who borrows money from a bank or a financial institution to buy a home is called a mortgagor. On the other hand, a bank or a financial institution that lends you money for buying a home or real estate property is called a mortgagee.
When you buy a home by borrowing money from a lender, the home is considered collateral for the loan. If you default on your payment, the lender can legally evict you and take possession of the home.
What does mortgagee-in-possession mean?
The term “mortgagee in possession” means that the lender who provided you with money to fund a home has the right to take possession of your home and even sell it if you fail to make your due mortgage payments. The lender or mortgagee can exercise this legal right of “mortgagee in possession” to recover the loaned amount from the borrower. However, the mortgagee will have to apply to the court for taking over or selling the property.
The process of mortgage-in-possession
When you fail to make mortgage repayments timely according to the terms of your mortgage contract, the mortgagee will issue you notice about your default on the loan and usually gives you some time to make the overdue payments. The mortgagee is legally required to issue you multiple notices before seeking court orders for selling the property or evicting you from it.
To exit your default and continue with your mortgage contract, you need to resume paying your overdue installments within 30 to 180 days from the date of your first default. Alternatively, you could try speaking with your bank to agree on a variation to your contract. However, if you do not make any payment within this period, the lender has the option to enforce the “acceleration clause” that makes the full amount of the mortgage due immediately.
In the next step, the mortgagee or lender can apply to court and seek court orders against you for vacating the property. Once the lender successfully gets court orders against you for vacating the property, you will be given a date by which you must leave the house so that the lender could take possession of the property. If you don’t vacate the property by the stipulated date, the lender might seek the help of local law enforcement bodies to forcefully evict you from the house, which is a highly unfavorable situation.
After you vacate the property, it goes into the possession of the mortgagee, and the status of the property is considered “mortgagee in possession”. At this stage, the mortgagee or lender can also arrange for the sale of the property as specified in the mortgage contract.
The process after mortgagee-in-possession
According to the law, the mortgagee or lender should take steps to sell the property for the best possible amount. To get the best quotes for the property, the lender can consider advertising the sale, get valuations of the property, auction it, or sell it privately. After the sale of the property, the proceeds from the sale will be used to settle the outstanding loan amount, recover the repair/maintenance expenses incurred to prepare the property for sale, and absorb the legal costs to enforce mortgagee-in-possession after the loan default.
If the proceeds from the sale of the property are not enough to cover the costs mentioned above, you will have to pay the remaining amount to the lender.
How Do I Handle the mortgagee-in-possession situation?
If you are having trouble paying your mortgage, you might have to face mortgagee-in-possession, which is an unpleasant and difficult situation. However, you can consider adopting the following options to avoid defaulting and letting the lender take possession of your property.
Follow our credit repair experts‘ tips on how to handle mortgagee-in-possession situations in Australia.
Mortgagee-in-possession is an unpleasant but avoidable situation if you continue to pay your mortgage installments. However, if you miss some of your payments, you can still avoid getting your property taken over by the lender if you take any of the steps we discussed in the article. The first step you should take even before you miss a payment is to inform your lender and discuss what options you have to find a solution to the problem. There are some other steps as well that you can take to avoid falling your property into the hands of the lender.