Mortgagee Sales still causing problems in NZ
Filed under: Interest Rates, Credit Cards & Mortgages in NZ, Jobs & Work, Property & General Investing
We are now three years into the Global Financial Crisis – with whole countries on the brink of bankruptcy, and huge Bail out Packages being organised to protect them and allow then to keep on spending. Not so for the likes of you and me – we don’t get Bail-Outs. And rocking up in front of the bank rioting about it will just get us thrown in jail.
New Zealand still seems to be pretty much protected from the worst of the crisis. I’m not even sure if we are in a Technical Recession “Growth of -0.1% is a recession, growth of 0.1% isn’t.).
But – with our without that, individual people in New Zealand ARE affected. People have lost thier jobs, though unemployment is still relatively low here compared to historic figures, and no where near the dizzying 11% predicted by some think tank idiots. Many people have lost properties as they overreached in the property boom and had nowhere to go when the music stopped.
Complaints to the Banking Ombudsman about Mortgagee Sales (where the owner stops paying the mortgage and the bank takes over the property and sells it to recover some of the money they have lost) are at an all time high. Mainly because the banks go for quick sales rather than getting the highest price – which often leaves the owner still owing money to the bank, even though they no longer own the property. The bank can also charge any fees and costs on top.
Recent cases include a couple whose retirement plans were devastated by the mortgagee sale of their home and three investment apartments.
The four properties had been valued at $2.1 million but fetched $1.5 million. The couple were then sued for another $350,000 – and then pursued for the bank’s $40,000 legal fees.
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In John Lamb’s mind, there is no doubt he could have saved his retirement. He says the three houses he and wife Leslie lost in a mortgagee sale could have fetched a better price and saved their family home from the same fate.
“There’s one selling in the street for $425,000 and they sold mine for $300,000.”
The High Court at Auckland disagreed. Justice Edwin Wylie said he had “sympathy” for the Lambs but they had no defence to the $346,000 they owed Westpac.
The debt was still remaining after the mortgagee sale. The Lambs weren’t arguing it. Instead, they said they shouldn’t have to pay because Westpac didn’t get the best price for their properties.
If they had, they argued, there would be nothing left owing.
“I’m in the middle of a jungle. They’re coming after me,” says Mr Lamb, who expects to be made insolvent. “The man in the street is gasping for air.”
The sales came almost two years after Mr Lamb lost his job. “How would I pay my mortgage if I didn’t have a job?”
The property portfolio went for 73 per cent of valuation. The Lamb family home was sold for $600,000 against a valuation of $780,000.
Mr Lamb, originally from South Africa, says the experience has soured the family’s decision to move to New Zealand. His adult children have left to work in the Middle East. He would like to leave – but won’t be allowed to travel as a bankrupt. “It makes me totally sick about your country.”
The judgment records the Lambs’ accusation that Westpac sold the properties too cheaply. They told the court it was not marketed properly and was dealt with by specialist mortgagee sales agents who had about 40 other properties to sell.
“What salesman can handle selling that many houses?” Mr Lamb asks.
But it also shows the bank repeatedly tried to work with the couple to sell the properties before taking over the process. It advertised them for 11 weeks before they were sold at auction.
A Westpac spokesman said going to a mortgagee sale was the last resort. He said the bank tried to work with the customer to find ways to avoid the sale and urged those facing difficulties to let their lender know.
“In all mortgagee sales, the bank makes every effort to obtain the best possible price.”
So, a couple of points here to think about:
LVR (Loan to Value).
With over $2m in property, its advised that LVR is no more than 70%. The more property you own, the lower the LVR should be. Now that’s hard when property Values drop. Our LVR went from 70% to 80% because the values of our properties dropped. We are working to pay off mortgages to bring it back down to 70%.
“How would I pay my mortgage if I didn’t have a job?”
Insure yourself.
Property is NOT a risk free investment. Sure it has major advantages over shares (whose values can and have in some cases go to zero where at least a property is worth something). But you also have big debts with property, and the value of the property can end up being less than the debt on it. You should always have income protection insurance that will pay you a salary if you lose your job. You should not expect the banks to sit back and not get their mortgage payments.
This is not New Zealand’s Fault.
This bit made me really mad to be honest. Yes there’s a lot of things I don’t like about life here – getting ripped off by the banks is one of them. But it isn’t NZ’s fault that we chose to invest in property just before a global financial crisis hit the world. We made that choice and we took that risk. For Hubby and I it has not exactly been a bed of roses for the past few years – without our investment properties – right now we would be living the high life to be honest. But is the fact that getting through this is tough really the fault of the country we moved to? It would probably have been an awful lot worse had we stayed in the UK.
Dis the bank really not get the Best Price?
The “value of the property” is often a topic for heated debate. Just because you have a piece of paper that says your house is wroth $780k – does not mean that is the price you can expect to get for it. Did the Lambs try selling their properties when Mr Lamb lost his job? And if they did why didn’t it sell? Most properties I have seen for sale over the past few years are up for sale at prices that were fine 3 years ago. They are not fine now.
A property “selling” in the street for $425 k is not a property SOLD for that. And a forced sale will always drop the value of a place.
Banks don’t always chase the extra money.
We know of people whose banks took this action 3 years ago, leaving a shortfall. The banks have never gone after that shortfall. Thats not to say they won’t – but clearly not everyone is expected to play by the same rules.
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