know your rights and obligations of the mortgagor (borrower)
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This article is focused on New Zealand law and explains issues from a Common law perspective.
How to defend a New Zealand mortgagee sale
If you fail to make the payments due under a mortgage on your New Zealand home, the lender (the "mortgagee") has the right to recoup the loan amount through exercising the powers contained in the mortgage contract. Usually this is done through the power to sell the property.
The mortgagee must, however, fulfil certain strict legal requirements, including serving you (the "mortgagor") with the proper notice. If these requirements aren't met then you may be able to apply to the court for a remedy.
Mortgagee must serve you with notice before taking action
Before taking action the mortgagee must serve you with a notice under sections 119 to 121 of the PROPERTY LAW ACT 2007. This notice must adequately inform you of:
- the nature and extent of the default complained of (that is, the amount by which you are in default)
- the date by which you must remedy the default
- the rights that the mortgagee is entitled to exercise if you don't remedy the default by the specified date
The date specified must be at least 20 working days from the date on which the notice is given.
If you receive a notice from your mortgagee that does not comply with the legal requirements, you may be able to apply to the court for an injunction to prevent the sale going ahead. Further, if the mortgagee exercises the power of sale before the date specified in the notice, you may also be able to apply to the court for a remedy.
The mortgagee's duty to obtain the best price
The mortgagee has a statutory duty to take reasonable care to obtain the best price reasonably obtainable as at the time of sale. If the mortgagee breaches this duty, you can apply to the court for a remedy.
To satisfy the duty the mortgagee must adequately market the property, which may involve advertising outside the local area, giving notice of the property's advantages (including the potential for any development), and setting a realistic reserve price based on the property's valuation.
Three ways of exercising the power of sale
The mortgagee can exercise the power of sale in one of three ways:
- sale through the High Court Registrar
- sale through public auction
- a private sale
Sale through the Registrar
If the mortgagee chooses to exercise its power of sale through the High Court Registrar, it must apply to the Registrar and notify the Registrar of the name and address of the mortgagor and of any other mortgagee. The Registrar must be satisfied that the mortgagee is entitled to exercise its power of sale.
A mortgagee is entitled to buy the mortgaged property only if the sale is conducted through the Registrar.
Your right to redeem the property
There is a small degree of protection afforded to you, the mortgagor, through the "redemption price" -“ this is the price at which you may redeem the land to be sold. At any time before the Registrar's sale you may pay the redemption price or the amount due and owing under the mortgage; the mortgagee must then release the mortgage.
The redemption price is set by the mortgagee, and must be specified in the mortgagee's application to the Registrar to conduct the sale. Any advertisement for the mortgagee sale must state that the redemption price is available at the Registrar's office and can be obtained before the auction.
- If there is a second mortgage over the property, the first mortgagee owes, in exercising the power of sale, a duty to the subsequent mortgagee to obtain the best price possible for the property.
- For advice on applying to the court for an injunction or other remedy against the mortgagee, you should consult a lawyer.
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