What do I need to know about buying at a mortgage auction?

Summary:

There are a few risks to be aware of, over above the normal due diligence and these factors do have an impact on you when buying at a mortgagee auction.

Getting legal advice is recommended as the bank has hold over the property, not the original owner.

However, the owner has the rights to take the chattels – be aware of this.

The damage in the apartment under a mortgagee auction is the buyer’s responsibility.

There are no vendor warranties, so where modifications have been done there is no guarantee that it has its code of compliance.

The time frames with tenants change too, as you are only able to give notice upon settlement so it can take longer to have a vacant possession.

TRANSCRIPTION:

Good day, Andrew Murray here, from the Apartment Specialists. Now, going into buying at mortgagee auction, there's a few more risks that you need to aware of.

Now, other than your standard auction, where you've got to do all your due diligence up-front, you've got to get your building inspections. You've got to check the LIM report. You've got to make sure the property is fine, have your evaluation, have your finance sorted - all that kind of thing. Now, we all know about that.

But on top of that, with a mortgagee auction, there are a few factors which you need to be aware of before you go into buying. And before you do, go into buying at mortgagee auction, I'd highly recommend you get legal advice, so you can fully understand it.

But briefly I'll just go through it now. What you've to understand that, is the bank has hold over the property, not what's in the property. You can go and inspect the apartment or the house or whatever you're buying, and the chattels that are in that apartment, may not be there when you settle on the apartment, because the owner has their rights to come in and go and take them. That's your floor coverings, your dishwasher, your washing machine, your lights. Basically everything in the apartment. So, be really aware of that.

Also, another thing is, if there's damage to an apartment. So, often what happens when you purchase an apartment, and you go under contract, often whether anybody was living in it, if there's tenants, or if there's anybody goes into it, and damage occurs, on settlement the vendor is liable to fix that before settlement. But under mortgagee auction, you don't have that protection. Any damage that occurred to the apartment and between that time frame, is your responsibility.

Another one is, there are no vendor warranties. This is what it comes down to-- especially in an apartment where the contract can get modified, things are changed, walls are put in. In a lot of cases in the CBD - and I come across this all the time - where apartments have modifications, and they haven't been done legally, so there hasn't been a code of compliance granted, or consent granted.

Under a normal mortgagee situation or a normal Seller Purchase Agreement, you have a vendor warranty that puts these into place. But in a mortgagee auction, there is no guarantee or no warranty in place, to say that anything done to the apartment or the property has its code of compliance.

Another one that a lot of people aren't aware of is getting vacant possession. That can be very, very difficult. Because you're not actually able to have vacant possession, until you are the legal owner.

Normally, when you purchase an apartment and you want vacant possession, the seller, if it's a periodic tenancy, can give 42 days notice, or can start that process. When it's a mortgagee auction, and you buy at a mortgagee auction, you can't actually go through that eviction process until you are the legal owner. That means all the time frames change. If it's a periodic tenancy, it goes to 90 days. There's all these other factors involved. You can talk to your lawyer about  it under the Tenancies Act. But what I'm sort of highlighting here is, a mortgagee auction isn't just your normal auction.

There are a few differences that you need to be aware of, and when you are purchasing, you are at risk. Before going to bid at mortgagee auction, what I highly recommend is, you go and seek legal advice. Just to get an idea of what could happen. I hope that helps and otherwise, all good.

Thank you. Cheers, Bye.