What can happen if you default on your mortgage
From a missed payment to a mortgage sale, getting behind on your home loan is a big deal – but you don’t have to struggle on your own.
Read more about managing debt
Act early for the best outcome
Getting behind on your mortgage is a serious matter. If you’re struggling then the best thing to do is act early: talk to us or to your lender as soon as you realise you can’t pay. This is when you are in the strongest position to negotiate a change that will help you manage your payments.
If you do miss your mortgage payments, the lender has to go through a process – which could end up at a mortgagee sale.
This is an extremely stressful time and you’ll need a safe pair of hands. We’ve helped plenty of clients out of these situations. A change to a different bank is not always easy but we have plenty of non-bank solutions designed to tackle the problem and get you back on track as soon as possible.
Letter of demand
If you are three months behind on your mortgage payments, the bank can issue a letter of demand. This will give you a timeframe to pay your arrears, plus interest and any fees.
At this point it is still not too late to enter into a repayment plan, or to go to another lender. If you come to us we can help you work out the best way to move forward.
If you don’t pay your arrears or make repayment arrangements by the date on the letter of demand, then the process moves forward a step.
Public Law Act (PLA) notice
A PLA notice states that you are in default of your mortgage because you haven’t paid the amount listed in the letter of demand. The PLA notice will tell you how much you have to pay by a certain date, which has to be at least 20 working days from the date the PLA notice is issued.
The PLA notice has to be served to you in person, and you should not try to avoid it, because your 20 working days starts from the day it is issued, not the day you are served the notice.
At the same time as serving you the PLA notice, the lender can issue what’s called an acceleration – meaning they want you to repay the entire amount you owe on your mortgage. They can’t demand you pay it before the end of the term of the PLA notice.
If you don’t pay your arrears (or the entire mortgage) by the date on the PLA notice, then your lender has the right to sell your property as a mortgagee.
Under the Property Law Act 2007 your lender owes you a duty of reasonable care to get the best price reasonably obtainable when they sell your property. In practice, this means that the bank will get a registered valuer to provide an indication of a reasonable mortgagee sale price, and contract a real estate agent to market the property for four weeks.
If the house sells for less than you owe, including selling costs, legal fees, and interest (often at penalty interest rates) you will still have to pay the remaining debt.
And in what might be a final kick in the teeth, if you repay the loan before the minimum term you can still have to pay an early repayment fee, even though it was a mortgagee sale.
What you can do
If you are at any stage of the process, you can come to us and we will do all we can to help you keep your house or avoid a mortgagee sale. But it is vital that you do not ignore the problem – come to us as early as possible when there is the most we can do.