How Does a Mortgagee Sale Affect Tenants?

What is a mortgagee sale?

A mortgage is a home loan secured against a property. If the borrower fails to make their mortgage repayments, the lender can sell the property to recover the money they are owed. Usually, mortgagee sales only occur as a last resort, when it’s clear the borrower is unable to repay their debt.

What happens if a landlord experiences a mortgagee sale?

When a landlord falls behind on their mortgage payments, the lender is required to provide:

• At least four weeks’ notice detailing the default
• A deadline to remedy the default
• Information on the lender’s planned actions if the default isn’t resolved (e.g. selling the property)

If the default isn’t fixed, the lender can take over the property and become the new landlord.

How does a mortgagee sale affect tenants?

When a mortgage lender takes over as landlord, it must inform the home’s tenants. The tenants then pay their rent to the lender. If the original landlord demands rent, tenants can seek help from the Tenancy Tribunal.

Once in possession of the property, the lender has the same rights and responsibilities as any landlord and must follow the Residential Tenancies Act 1986 and the tenancy agreement.

What happens to the bond?

If the bond is held by Tenancy Services, the mortgage lender must notify them within 10 working days of taking possession. The bond remains with Tenancy Services and the mortgage lender replaces the landlord on the bond record.

What happens if the property is sold by the lender?

When the lender sells the property, it must fulfill the same obligations as any other landlord. The buyer becomes the new landlord on the settlement date. They inherit the existing tenancy agreement, including all its terms and conditions.

What happens for fixed-term tenants?

In a mortgagee sale, the lender (or the person who buys the property at the mortgagee auction) has special rights regarding fixed-term tenancies.

In this case, the lender or the new owner can give notice to end the tenancy as if it were a periodic tenancy. Similarly, the tenant can also give notice to end the fixed-term tenancy as if it were periodic.

About the author of this page

This report was written by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.