A mortgagee sale happens when a person can’t pay back money they owe to the bank. The bank sells their property to get back the money it’s owed.
A mortgagee sale is different to a normal sale
The mortgagee sale process is a bit different to the process when a rented property is sold.
Sale of house has more about when a rented property is sold.
The mortgagee sale process
When a landlord is in default with their mortgage payments, the bank must give:
- at least four weeks' notice of the nature and extent of the default
- the date by which the default must be remedied
- the rights the bank can exercise if the default isn’t remedied within the specified period (for example, the right to sell the property).
If the default isn’t remedied, the bank is entitled to repossess the property and becomes the landlord.
The owner should seek independent advice on the mortgagee sale process.
The bank becomes the landlord
The bank must notify the tenants when it takes over as landlord. After receiving notice from the bank, the tenant can begin paying rent to the bank. If the original landlord insists that the tenant pays rent to them, the tenant can apply to the Tenancy Tribunal to sort the matter out.
Once the bank has possession, it has the same rights and responsibilities as if it were the landlord. The bank is bound by the Residential Tenancies Act 1986 and by the tenancy agreement.
What happens to the bond?
If the bond is held by Tenancy Services, the bank has 10 working days to tell Tenancy Services it’s taken possession of the property.
The bond stays with Tenancy Services, and the bank is recorded as the landlord on the bond record. If the previous landlord has already applied to the Tenancy Tribunal to get the bond back before the bank takes over, they may be refunded the bond if they’re successful at Tribunal. This may mean the bank has no bond (or a reduced bond) to claim if the tenant breaches their obligations.
Obligations during and after the sale
The bank has the same obligations as every other landlord during the sale process.
Sale of house has more on the rights and obligations of landlords and tenants during the sale process.
Whoever buys the house after the bank has taken possession becomes the new landlord from the date of settlement. They inherit the tenancy agreement, along with all the terms and conditions previously agreed to.
Ending the tenancy
With a mortgagee sale, the bank (or the person who purchases the property at the mortgagee auction) has special rights for dealing with fixed-term tenancies. If a fixed-term tenancy is in place, the mortgagee or the new owner has the right to give notice to end the tenancy as if it were a periodic tenancy. This applies unless, for example, the mortgagee bound themselves at the beginning of the tenancy that the fixed term would continue even if they took back possession through the mortgagee sale process.
When the bank takes over, or the house is sold at mortgagee auction, the tenant also has the right to give notice to end the fixed-term tenancy as if it were a periodic tenancy.