What are foreclosures and mortgagee-in-possessions?

When a home buyer takes out a mortgage with a lender, the property at the centre of the agreement is regarded as collateral. If the buyer fails to make the agreed loan payments over time, the lender can sell the property to recoup the money it provided as a loan. A 'foreclosure sale' is when a lender (such as a bank) transfers the title of the property to itself before selling. A 'mortgagee-in-possession sale' is when the title remains in the original buyer's name during the sale. Either way, such ‘distressed sales’ represent a golden opportunity for those seeking affordable property.

How do you find pre-foreclosures in your area?

If you’re interested in buying pre-foreclosure or mortgagee in possession properties, there are a number of options for tracking them down. You might first look at popular property websites, such as rpdatacom.au, and scan the listings for properties that have been on the market for extended periods eg 365 days. You can also develop a network of professionals, such as real estate agents, who can give valuable insight into these kinds of properties. Finally, you can keep an eye on publicly available court lists. Sometimes individuals who are on these lists are faced with financial difficulties and as such, can be more inclined to sell their properties due to their distressed circumstances. These court listings include mortgagee, divorce, sheriff sales (located in government gazettes) and liquidations.

How to buy a house that’s in pre-foreclosure/ mortgagee-in-possession?

This can be done in one of three ways ie 1) going to a public auction for the property, 2) going directly to the distressed home owner and negotiating a deal for a WIN-WIN outcome for all parties involved, or 3) taking over of the property with the intention to on-sell it. Option one cannot be advertised as a pre-foreclosure/ mortgagee-in-possession property as consumer law forbids this practice in Australia. However, if prior knowledge is gained by identifying the property being auctioned through the court lists, by way of matching names with the property being sold, then this can offer the astute buyer a considerable advantage. The second process offers the buyer a more direct route and cuts out the competition. The same sourcing process as in option one takes place, however, this time negotiation can be carried out directly with the distressed homeowner. As with any deal, both parties need to agree to the terms of sale for there to be a successful outcome. Should the property be under water ie the owner owes more than the property is worth, this includes any arrears, then the bank must also agree to the terms of sale. Finally, the third option is to take over the property, payout the arrears to the bank and continue making mortgage payments until such time that the property is ready for sale. Again, the same sourcing process as in options one and two takes place. As in any deal, both parties need to agree to the terms of sale for there to be a successful outcome. The third option is a great strategy to use especially when the person taking over the property can add value through a renovation. This option does not require the title to change hands. The DG Institute can provide further information around courses which cover securing distressed properties for a WIN-WIN outcome for all parties involved.

Where to find mortgagee listings?

When a bank attempts to sell a property it has repossessed due to non-payment of a loan, it can’t simply take the first offer that comes along. Consumer law in Australia requires the lender to make a reasonable effort to get a fair price for the property with the intention of both recouping the money owed to it and delivering any equity that might have been built up to the defaulting owner. For this reason, repossessed property sales must be given every opportunity to get a fair market price and to do this, the bank must advertise the property through a real estate agent before going to auction. If your goal is finding such properties before they go to auction, the DG Institute supplies graduates with a list of prospects, while court lists and specialist websites may also offer leads.

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