Mortgagee sales - need law change?

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#2540233 13-Aug-2020 14:03

BlinkyBill:

Golly! Property is not covered by consumer protection laws...There is no overarching legal protection for anyone when purchasing property - there is only legal action...

Again, the point is actually that perhaps there should be those protections. I'm well aware of what you're saying - my opinion is simply that there should be more in place than "see you in court".

Housing and property is a nightmare in this country, and in my opinion, a lack of protections and standards is one of the issues with it.

kingdragonfly

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#2540238 13-Aug-2020 14:09

@dejadeadnz Good advice.

@BlinkyBill raised a confusing point about auctioned mortgagee sales.

...As the buyers lawyer should be advising the buyer of the purchase anyway in this type of situation, I would have thought they would put in suitable clauses to protect the buyer. But if buying at an auction for example, I am guessing that could be difficult to do.

No, it’s not difficult to do when buying at auction.

I believe it's pretty much impossible to add a condition once the auction is under way.

In other words:

Auctioner: Could I get $500,000?

Bidder #1: I'll give $500,000 under condition of vacant possession.

Bidder #2 I'll give $500,000 under condition I can sell my home first.

Bidder #3: I'll give $500,000 under condition I can get financing and clear title.

Auctioner: errr... a little help please from our lawyer...

Bidder #1: I'll give $509,999 under condition of vacant possession, I can sell my home first, I can get financing and clear title

antonknee

1133 posts

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#2540282 13-Aug-2020 15:16

Am I incorrect in saying that you put your conditions in before the auction, sign a variance with the vendor, and bid on that basis? But the vendor is under no obligation to accept the conditions you wish to bid on.

Certainly that was what happened at an auction (not mortgagee) I recently attended.

SheriffNZ

671 posts

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#2540294 13-Aug-2020 15:29

antonknee:

BlinkyBill:

Golly! Property is not covered by consumer protection laws...There is no overarching legal protection for anyone when purchasing property - there is only legal action...

Again, the point is actually that perhaps there should be those protections. I'm well aware of what you're saying - my opinion is simply that there should be more in place than "see you in court".

Housing and property is a nightmare in this country, and in my opinion, a lack of protections and standards is one of the issues with it.

Isn't all the risk ultimately reflected in the price you pay? If a property is worth $500k but there is a risk damage will be done to it, or it will be difficult to get the tenants out, only offer what you think the property is worth, less what it's going to cost you to be in a position to deal it? Yes there are risks, but factor them in to what you are prepared to pay.

A beautiful multi million dollar house may only sell for land value at a mortgagee sale if buyers deem there is too much risk. That's also a risk that mortgagees take when selling property.

BlinkyBill

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#2540301 13-Aug-2020 15:43

antonknee:

Am I incorrect in saying that you put your conditions in before the auction, sign a variance with the vendor, and bid on that basis? But the vendor is under no obligation to accept the conditions you wish to bid on.

Certainly that was what happened at an auction (not mortgagee) I recently attended.

You are not incorrect, and that happens regularly. It is easy.

kingdragonfly

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#2540305 13-Aug-2020 15:47

@BlinkyBill besides saying "it's easy" twice now could you expand on how it actually happens?

BlinkyBill

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#2540318 13-Aug-2020 16:00

Did you read Antonknee’s post? That’s how.

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kingdragonfly

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#2540375 13-Aug-2020 17:49

So "it's easy" means the same way Trump says the Coronavirus "is what it is"?

As you mentioned there is no default conditions, no protection.

If I was at an antique car auction, and cars were selling for hundred of thousands to millions, the country's law would at least protect the buyer that the car's had a clean title, and you'd be able to take the car home once purchased.

Why should a house be different?

dejadeadnz

2394 posts

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#2540534 13-Aug-2020 20:44

kingdragonfly: So "it's easy" means the same way Trump says the Coronavirus "is what it is"?

As you mentioned there is no default conditions, no protection.

If I was at an antique car auction, and cars were selling for hundred of thousands to millions, the country's law would at least protect the buyer that the car's had a clean title, and you'd be able to take the car home once purchased.

Why should a house be different?

You do have a couple of facts wrong.

1. Only as a "consumer" under the Consumer Guarantees Act would you have a statutorily guaranteed warranty that the seller can pass tittle of goods to you.

2. Under the common law, it's generally presumed that the seller can pass title to the buyer. But the parties are free to contract out of this. There are cases where people dealing at arms length might legitimately want to do this. Say there's a piece of valuable painting that's the subject of disputed ownership between A and B; A has possession of it and purports to transact with C as a person who has the right to part with it but nonetheless isn't willing to guarantee that C won't be subjected to a legal dispute over the painting later on. So they contract to override the common law presumption.

You can say what you might about whether this is ethical or not but the law allows this. And this isn't a house that we are talking about. In the case that you are talking about, any rational buyer properly advised will be offering a much lower price to account for the risk. And the cost of legal advice before a S&P agreement is signed is frankly miniscule. There are certainly reasonable grounds for arguing that people should be entitled to take such risks. Like I said, very few "first timers" will or should buy at mortgagee sales. I'd have more sympathy for your view if we are talking about a spec builder targeting first home buyers trying to wiggle out of all usual warranties.

dejadeadnz

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#2540616 14-Aug-2020 00:55

I should also add that, realistically speaking, the condition of a clear title in the property law sense (i.e. title is non-defective and adequately covers/confers ownership of the physical property) is generally unnecessary. Most trading banks do reasonable levels of due diligence before they will lend. The DD is not always perfect and sometimes may be done by a senior lender only but errors would be truly edge cases.

kingdragonfly

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#2540640 14-Aug-2020 07:41

Very concise and informative.

You alluded to "spec builder ... trying to wiggle out of all usual warranties."

Anyone care to explain, specifically has this happen in NZ?

SATTV

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#2540650 14-Aug-2020 08:22

kingdragonfly: Very concise and informative.

You alluded to "spec builder ... trying to wiggle out of all usual warranties."

Anyone care to explain, specifically has this happen in NZ?

Yes this used to happen all the time.

A builder would form a company, build a house, sell the house and then dissolve the company to avoid any comeback.

The government changed the rules about 15 years ago to prevent this.

A friend of mine did a labour only contract to build his house in Christchurch, they lived in it for a number of years until his employer relocated him to Brisbane, he sold the house.

About 2 or 3 years later he was served papers that the building was leaky and he was deemed the builder as he was paying the bills ( even though he did hammer a nail on the build )

The waterproofer had not done the lapping properly on the curved balcony, in the end it cost him $90,000 to pay the homeowner.

While my friend did his best to minimise the payout he was not trying to dodge it.

There are plenty out there who will dodge it, hide and not pay.

I know enough to be dangerous

Sidestep

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#2540902 14-Aug-2020 11:39

kingdragonfly:

If I was at an antique car auction, and cars were selling for hundred of thousands to millions, the country's law would at least protect the buyer that the car's had a clean title, and you'd be able to take the car home once purchased.

Why should a house be different?

They're not necessarily different.

I love auctions, I get a buzz from them that I imagine others might get from gambling.
And yes, I've bought potentially valuable collector cars at auction - with no title, and no guarantee I'll be able to take them home.

The auction catalog will clearly state something like “No Title, sold with Bill of Sale only” or “Documents for registration or export may not be available” and usually the vehicle's sold 'as is" mechanically. Most auction houses do, however, guarantee the vehicle is free from encumbrances, taxes, fees and liens.

In return for taking the risk that the 'true market value' of the vehicle is only it's scrap price, I'd expect to pay far below - maybe a third of - the appraised value for the same car with guaranteed Clear Title, - as valuations provided by Hemmings/Hagerty, Collector Car guide, or NADA assume.

Untitled collector cars, repo's, foreclosures, mortgagee sales, liquidations, bankruptcies, government surplus..
Bidding on those marginal/high risk lots – where there's no guide as to where the hammer will fall - is where the real bargains are to be had, and the real excitement is.

The trick is having the ability to realistically assess the risk against the potential reward. If you're a first time/one time buyer you shouldn't bid them.
As Rumsfield famously said, there are "known knowns, known unknowns, and unknown unknowns, the last being where you gamble on your 'gut feeling', previous experience - and confidence..

Auctions are a great way for vendors to sell things that due to unique characteristics, risk or uncertainty are difficult to determine a market price for.

Normally you'd know roughly what a comparable property would sell for - a certain amount above CV, an assessment by Quotable Value, or a private valuation. If there are unknowns - no photos inside the house, likely damage or potential squatters, you'd expect the bidding to reflect that. In NZ, with it's Torrens title system, the risk of the seller not having Title to a property appears low, so the discount would likely reflect the other hassles you could expect from a Mortgagee sale.

If you're willing to take a calculated risk, and know what you're doing, an auction win can provide a once-in-a-lifetime boost equivalent to years of work.

I once bought a large building at auction (an old hospital) paying virtually nothing for it (maybe a ten-thousandth of replacement cost)
There was a huge catch, it had to be dismantled and/or moved offsite within 6 weeks of the sale – otherwise demolition/disposal, site remediation costs would fall on the purchaser.

Mine was the only bid because, to everyone else in the room, the potential risk vs reward was too large. My wife nearly had a heart attack.
It worked out OK, but was, in reality a calculated gamble, the sort of thing where you bet the house on finding a way to carry it off..

concordnz

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#2542633 17-Aug-2020 09:15

A mortgagee sale is a 'last resort' in all forms.
The home owner has had plenty of opportunity to sell the house themselves prior - or refinance/pay outstanding.
They are at a point where communication & compliance have totally broken down.

Everybody needs to move on (banks/council rates etc)

Because it is 'last resort' way of forcing an end, and letting everyone move on - no (in my research of mortgagee sales) there is limited protections. - & it all falls on the purchaser to get anything 'enforced'(tenants/owners removed)

A mortgagee sale forces an End point to the sorry saga & everybody at least knows what money is there to get divvied up.

It's pointless saying "owner should be forced to sell with Vacant posession" - generally the owner is the one refusing to do anything to get out of their financial hole & meet their legal obligations. - they would definately use that as another reason to continue to 'squat' in the property, with unpaid bills mounting.

If you try and add conditions like have beem indicated to a mortgagee sale - your variations will simply be rejected & you cannot bid (as therefore you are not 'registered) - the person/bank who has applied for the mortgagee sale - simply wants to move on after 5-6 years of fighting.

If you don't like it - don't go for mortgagee sales.
(From what you have said, you sound like a property beginner - and way out of your depth here - like a mom & pop shares invester, trying to invest in 'futures')

It is a specialist market for 'hardened souls' who have a teams to sort issues of removing squatters, - handling ongoing abuse & intimidation from ex-owners - cleaning up yards and repairs to 'purposely wrecked' interiors.
(That can all take months in itself & is costly)

kingdragonfly

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#2542923 17-Aug-2020 14:36

I'm waiting to see how much this mortgagee sale went for.

This is in a small provincial town, by the way. It's how I was able to get so much detailed information about the circumstances and even down to the process serve details.

I'd guess there's very few local teams like you describe.

As mentioned I offered 3/4 of the QV, and there were 17 offers.

Honestly losing never seemed so good.

Once QV post the final price, I'll post it here.

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