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Debt Collection Mortgagee Sale

Wednesday, November 13, 2013 - Posted by Philip Harvey

In the Case of CBA v Shannon [2013] NSWSC 1076, we look specifically at advertising a property as part of the sales process as a mortgagee sale. In this case, amongst other point, Shannon was claiming that by advertising the property as a mortgagee in possession meant the lender had not achieved market value or the best possible price. The Judge ruled in CBA's favour, and it is important to understand the reasons why.

Typically when selling a property as a mortgagee in possession, the practice of openly advertising the property as a mortgagee sale is avoided. This is done for a number of reasons, including protection of the lenders brand and ensuring the property is sold for market value or the best price possible having regard to the circumstances existing when the property is sold.

An aside point, we are now seeing websites dedicated to mortgagee in possession sales. One such site is http://mipsales.com.au/  covering properties right across the country.

In the case of CBA v Shannon, the Judge looked at a lenders obligation under s420A of the Corporations Act 2001, which states;

Controller's duty of care in exercising power of sale

             (1)  In exercising a power of sale in respect of property of a corporation, a controller must take all reasonable care to sell the property for:

                     (a)  if, when it is sold, it has a market value--not less than that market value; or

                     (b)  otherwise--the best price that is reasonably obtainable, having regard to the circumstances existing when the property is sold.

             (2)  Nothing in subsection (1) limits the generality of anything in section 180181182183 or 184.

 At paragraph 255, the Judge stated;

A breach of the section will not of course be established merely because the sale in question did not achieve the market value. What must be shown is a failure by the relevant person to take reasonable care to sell the property for not less than the market value having regard to the circumstances existing when the property was sold.

The judge viewed that advertising the property as a mortgagee sale was a "considered position" by the professional real estate agency involved in order to maximise the sale price.

The judge also points out that any "sophisticated purchaser" would note a mortgagee in possession selling a property upon review of the contract for sale of land.

References were also made to other cases dealing with the using "mortgagee sale" in advertising including;

Hallifax Property Corp Pty Ltd v GIFC Ltd (1987) 4 BOR 9708 - Opinions about whether "mortgagee sale" would depress the sale price could legitimately differ.

In Stockl v Rigura Pty Ltd the Judge agreed with the Halifax judgment and went on to say advertising a property as a mortgagee sale might attract buyers hoping for a bargain, thereby creating stronger demand, or it might induce buyers to thinking they don't have to offer market price, diminishing demand. In the Judges view, it is dependent on the type of property being sold and the way "mortgagee sale" is used in the advertising. Examples of an advertising campaign giving the impression of a fire sale would decrease price vs attractive advertising with the best features of the property displayed along with the mention of "mortgagee sale" might appeal to the person seeking that type of property.



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