Mortgagee Sales FAQ
For many, bidding at a mortgagee sale is a new and frequently intimidating experience. Inexperienced bidders often have many questions regarding mortgagee sales, but just as often discover that these questions remain unanswered. Bayleys is pleased to provide the following series of frequently asked questions about New Zealand mortgagee sales as a service to our clients and to the general public.
Please note that these questions and answers have been prepared by Bayleys for informational purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. Transmission of this information is not intended to create, and receipt does not constitute, an attorney-client relationship between Bayleys and the receiver. Readers should not act upon this information without first speaking to an attorney.
1. What happens at a mortgagee sale?
A mortgagee sale is the final stage of the mortgagee process, at which the property which is the subject of the mortgagee action is sold at public auction to the highest bidder. The sale is conducted by a court-appointed referee. The referee commences the sale by reading aloud the Terms of Sale; the Terms of Sale is the document that acts as the contract of sale between the referee and the high bidder, and sets forth the rights, responsibilities and obligations of both the referee and the high bidder. Once the referee has read the Terms of Sale, the referee begins to accept bids for the property. The foreclosing mortgage holder (the "Mortgagee") usually has an "upset price" which is the minimum amount it will accept in satisfaction of the mortgage debt. If the highest amount bid is less than the upset price, the Mortgagee will usually be the high bidder and take title to the property. If, however, the highest amount bid exceeds the upset price, the property will generally be sold to the highest bidder.
2. What happens if I am the highest bidder?
If you are the highest bidder, you must immediately pay to the referee an amount equal to at least ten percent (10%) of your bid (the "Bid Deposit"). The Bid Deposit must be in the form of cash or certified funds. In addition, you will be required to sign the Terms of Sale.
Since it is impossible to know the amount of the high bid prior to the sale, you should be prepared to bring to the foreclosure sale an amount equal to ten percent (10%) of the maximum amount you intend to bid at the sale. If you intend to make payment in the form of certified funds, you should bring to the foreclosure sale certified checks, bank checks and/or money orders in various denominations; by bringing certified funds in various denominations, you will increase the likelihood that you will have the correct amount of the Bid Deposit available at the time of sale. The certified funds may be made payable to yourself and endorsed to the referee at the time of sale.
3. How long after the mortgagee sale do I have to complete the purchase of the roperty?
In most cases, the Terms of Sale require that the balance of the purchase price be paid and the purchase of the property completed within thirty (30) days from the date of sale. It is within the referee's discretion whether to grant an extension of time to allow the high bidder to complete the sale. If the referee grants an extension of time, you will be required to pay interest on the full amount of your bid from the original scheduled closing date through and including the actual closing date.
4. What happens if I don't complete the purchase of the property?
If you are the high bidder and then fail to complete your purchase of the property, in most cases the referee will be permitted, without a court order, to declare a default, pay the entire amount of your Bid Deposit to the Mortgagee and immediately schedule a new mortgagee sale.
5. Can I purchase the property from the foreclosing mortgage holder prior to the foreclosure sale?
No. Prior to the foreclosure sale, the Mortgagee holds only a mortgage on the property and does not own the property itself. Since the Mortgagee doesn't own the property, it cannot sell the property prior to the foreclosure sale. The Mortgagee may, however, be willing to sell the mortgage prior to sale. If you purchase the mortgage prior to the foreclosure sale, you will then have to complete the foreclosure action, at your sole cost and expense, in order to obtain title to the property.
6. Can I inspect the property prior to the mortgagee sale?
Generally no.
As stated above, prior to the foreclosure sale, the Mortgagee does not own the property and, therefore, does not have legal authority to arrange for and permit inspections of the property. In addition, if you are the successful bidder, you cannot legally enter the property until such time as title has closed and the referee has delivered to you a deed to the property.
7. Who has the responsibility for evicting any tenants at the property?
If you are the high bidder at a mortgagee sale, it will be your responsibility to evict any tenants at your sole cost and expense. Please note, however, that until such time as title has closed and the referee has delivered to you a deed to the property, you do not own the property and do not have the legal ability to commence eviction proceedings, enter the property or collect rent from any tenants.
