A mortgagee sale happens typically where a homeowner, or borrower, stops servicing the mortgage. The lender takes action to forcefully, but legally, repossess the asset and sell it to recover their loan. 

From a lender’s perspective, it is a last resort action which only happens after failing to receive satisfactory results from other efforts to recover the mortgage. 

If you foresee financial difficulty and challenges such as not being able to pay your mortgage, the best thing to do is reach out to your lender as soon as possible. Explain your circumstances to the lender. As long as the loan is in good shape, the lender has the obligation to negotiate with you and come up with a workable solution.   

Responsiveness will give you a fair chance to renegotiate the mortgage terms. You will also know the mortgagee process and other rights as follows. 

The Right to Be Notified of the Impending Action  

Before a lender chooses to mortgagee sale a property, the homeowner must be notified.  

First, the lender will issue a letter of demand. It stipulates the amount in default and the date in which you should respond. Usually, lenders give a four-week window upon issuing the demand letter to enable the homeowner to respond and avert further action.   

If the homeowner fails to respond satisfactorily, the lender can take another step and issue a notice in line with the Property Law Act (2007). It is also known as a PLA Notice.  

Unlike the letter of demand, the PLA Notice must be served to the homeowner. However, if the homeowner is uncooperative, the lender can opt to publish the notice as a public notice.  

The PLA Notice sets the ball rolling towards a mortgagee sale. It gives the following details: 

• Amount in default. 
• What must be paid back? 

• A date by when the payments must be made after which the bank has leeway to take unilateral action.  

Right to a Fair Mortgagee Sale Process 

Upon the expiry of the time set on the PLA Notice, the lender can move to sell the property. By now the lender has taken possession of the property. However, you still have the right to a fair mortgagee sale process. That is to say, the property seller must make reasonable attempts to sell the property at market rate.  

Why You Must Be Responsive 

Mortgagee sales are ugly situations in which there is no winner. Lenders often try to avoid such situations and only resort to mortgagee sales where the homeowners have become unresponsive.  

If you burry your head in the sand, the bank’s only option at recovering the loan is to sell the property.  

This is perhaps the most important reason why you must be responsive to the bank – to give the bank options.  

Some of the options that are made available for homeowners include: 

• The opportunity to sell their homes without the “mortgagee sale” stigma.  
• Extension of deadline dates on the PLA Notice  

• The chance to seek alternative financing and stop the mortgagee sale.  

Remember, when the lender plans to mortgagee sale your home, they are not obliged to get the market rate. According to the banking ombudsman, it appears that lenders are only expected to show reasonable effort to attain the market price.  

However, due to the stigma and the risks facing buyers, such properties tend to fetch low prices. Worse still, if the sale price does not cover the outstanding loan as well as other costs, you will still be indebted to the lender at a much higher rate, as an unsecured loan.  

So, don’t bury your head in the sand. Be responsive and avert possible bankruptcy.