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Released every month our debt collection blog contains news, stories and tips to keep you informed.

AFCA Approach to Mortgagee Sales

Monday, April 29, 2019 - Posted by Michael McCulloch

Recently the Australian Financial Complaints Authority (AFCA) released a series of guides outlining their approach to common complaints. This month we take a look at the AFCA approach to Mortgagee Sales.

Where a consumer (Borrower) is unable to repay a loan a Financial Service Provider (FSP) may elect to take possession of the property to sell it to reduce or payout the loan. AFCA have set out their guidelines as to what a FSP must do when it takes possession and what they will take into account if there is a complaint raised by the Borrower about the sale process -

Reasonable Care
The FSP must take reasonable care when it takes possession to ensure that the property is sold at its market value. The FSP does this by making important decisions at key milestones and oversees the entire sale process.

Consulting the Borrower
The FSP does not need to consult the Borrower about key decisions or the sales process nor is there an obligation to keep the Borrower informed as to the progress of the sale. There is however an obligation on the FSP to communicate to the Borrower when the sale is completed and how the sale proceeds have been used.

Property Maintenance
The FSP generally does not have to spend money to improve the property nor does it need to find new tenants or let existing tenants stay to make money prior to the sale. The FSP however may need to pay for common maintenance issues such as repairing broken windows or replacing locks to secure the property, cleaning, gardening or lawn mowing, repairing pool equipment or fencing a pool if it is required by law before the property can be sold.

Insuring the Property
The FSP should insure the property prior to taking possession.

Market Value
The FSP should obtain at least 1 sworn valuation from an independent registered valuer.
According to the International Valuation Standards Council the definition of "market value" is -
"The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion."

Marketing the Property
The FSP should obtain at least 1 marketing proposal from a reputable property agent. This proposal should include recommendations on the market value, the best way to sell the property (auction, private sale, tender), marketing and advertising strategy and any work needed to prepare the property for sale such as repairs and maintenance.
Advertising campaigns may include print media, online ads through reputable sites such as domain.com.au and realestate.com.au, billboards at the property, flyers or handbills, contact with potential purchasers through an agents internal marketing list, public inspections or inspections by appointment.
It is at the discretion of the FSP is they advertise the sale of the property as a mortgagee in possession. This may attract more purchasers with the onus on the auctioneer to ensure that the auction generates competition between bidders to achieve a sale at market value.

The Sale Method
In a vast majority of cases the property will be sold an auction with AFCA recommending a minimum 4 week advertising campaign with weekly inspections and inspections on the day of the auction.
If there is advice from a the FSPs experts recommending a private sale the FSP must take reasonable care with marketing and advertising. It must show that it bought the property to the attention of all potential purchasers thus creating competition and achieving market value.
Where the property is being sold at auction all available information should be considered such as valuations, marketing reports and previous offers.

Proceeds of the Sale
All proceeds following the sale must be accounted for and must be explained to the Borrower after the sale has been completed.
Funds from the sale may be used to reduce or payout the debt the Borrower owes to the FSP or other Creditor with a mortgage over the property, pay reasonable costs incurred in taking possession of, maintaining and selling the property.
Any surplus from the sale should be paid to the Borrower. Where the Borrower has loans from the FSP for more than one property any surplus may be used to reduce the balance of the other loan.

Reasonable Costs
The FSP should only do what is necessary to obtain possession of the property. For example if the Borrower is prepared to offer up possession and agreeing to the sale it would be unnecessary for legal action.
Once in possession the FSP can reimburse itself for costs relating to the security, insurance and maintenance of the property as well as the relevant advertising and sale costs including agent commissions.
The FSP, under the Loan Contract or Mortgage, will also usually be allowed to recover reasonable and proper legal costs. The FSP, of course, must not recover more costs than was paid to it legal representative and must apply any discount or rebate to the Borrowers loan.
In the event of a complaint the FSP must provide invoices for all costs it has taken from the sale proceeds.

To learn more or to read this article in it's entirety visit AFCA Approaches - Mortgagee Sales.

Disclaimer: This article is general information only and does not constitute legal advice and is not intended to be relied on in any way.

Dealing With Rental Arrears

Monday, April 29, 2019 - Posted by Michael McCulloch

With many consumers facing financial difficulty we are seeing more enquiries regarding the collection of rental arrears. With investment properties sometimes forming a large part of a families income and many pensioners relying on this income to fund their retirement  it is important to take early action to minimise any potential loss.

The Reason for Rental Arrears
Like most referrals to our office the reasons vary however typically rental arrears is primarily due to the tenant losing his or her employment, an increase in the cost of living, a reduction in work hours or a change from full-time to part-time employment or some other unforeseen event.

Requesting Payment
The law varies from State to State however a tenant must usually be more than 7 days in arrears before any kind of demand for payment can be made. The correct documentation must also be issued which advises the tenant of the arrears outstanding and asking when payment can be expected.

Can I Help The Tenant?
Yes and this is often the ideal solution.
Agreeing to a tenant making increased repayments to clear the arrears can sometimes work out better for both parties in the long term as you do not need to find a new tenant and there is every possibility the arrears will be paid without the tenant vacating the property and owing you money. There are also a number of organisations that a tenant may seek assistance from if they need support. These include:
- Tenants NSW
- Tenants QLD
- Tenants Union of Victoria
- Tenants' Advice Service (ACT)
- Tenancy WA
- Office of Consumer & Business Services (SA)
- The Tenants' Union of Tasmania
- Consumers Affairs NT

Issuing a Breach Notice
Any Breach Notice must be issued in accordance with the relevant State legislation. You should make enquiries with your relevant tenancy tribunal as this varies around Australia.

Terminating the Tenancy
Termination of the tenancy should be the very last resort. If you have been unsuccessful in coming to an agreeable resolution a process must be followed which again varies from State to State. Locking tenants out of the property however without an Order from a Court or Tribunal is illegal.
Generally speaking the issue of a non-payment termination notice in writing does not officially end a tenancy. The tenancy is only officially ended once the tenants have vacated the property and the keys returned. If the tenant refuses you may have to look at commencing proceedings in the Court or through your relevant Tribunal.

Avoiding Future Issues
Clear communication and screening your tenants is the best way to avoid rental arrears and eviction. Ensure that any potential tenants are reference checked carefully, previous rental payment history is considered and enquiries made with employers to verify a tenants employment status and income. Where possible we also recommend that rental payments are made by direct debit on the tenants designated pay day to ensure prompt payment.


ASIC Recommends Buy Now Pay Later Reform {Updated April 2019}

Monday, April 29, 2019 - Posted by Michael McCulloch

In our August 2018 and December 2018 editions of debt collection news we reported on  an ASIC investigation into the "buy now pay later" segment which has become popular among consumers as a means to finance small to medium purchasers and pay these purchases off interest free over a period of time.

Legislation has been passed which gives the Australian Securities & Investments Commission (ASIC) new powers to regulate this emerging sector. The laws provides ASIC with the power to protect at-risk consumers with James Shipton, ASIC Chair, stating, "

These new powers will enable ASIC to take broader, more proactive action to improve standards and achieve fairer consumer outcomes in the financial services sector. This will be a significant boost for ASIC in achieving its vision of a fair, strong and efficient financial system for all Australians."

The reforms will be phased in over a period of 2 years and will require companies to identify in advance if a product is appropriate for a consumer. Read the ASIC media release at 19-079MR ASIC Welcomes Approval of New Laws to Protect Financial Service Consumers


Queensland Casino Pursues $43 Million Debt

Monday, April 29, 2019 - Posted by Michael McCulloch

A Queensland based casino has allegedly commenced proceedings in the High Court in Singapore to recover an AUD$43.2 million debt according to mygc.com.au

The Star Entertainment Group ("The Star") invited Dr Yew Choy Wong to play at their Broadbeach, QLD casino located on the Gold Coast to play as a VIP in July 2018. Dr Wong accepted the invite and it is alleged lost AUD$43.2 million over 5 days playing baccarat. It is alleged that Dr Wong supplied The Star with a blank cheque to cover any of his losses however once he left the casino the cheque was dishonoured with Mr Wong claiming that his bank would not honour the cheque due to alleged mistakes made by the dealer throughout the length of his stay.

In a letter from The Star to Dr Wong it is alleged that the casino acknowledged that mistakes had been made however claimed that these mistakes did not have a direct financial impact upon Dr Wong, however Dr Wong claims that the letter from the casino waived the debt as a result of the mistakes made.

In a statement to the media Dr Wong's solicitor said, "Dr Wong will contest the Singapore case as a matter of principle and intends to vindicate his decision to stop payment."



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