At LCollect we believe that knowledge is power. Every month our debt collection blog gives you practical tips, stories and news from around Australia and the world.
A recent survey conducted by Mortgage Choice has shown that 25% of buyers do not understand what Lenders Mortgage Insurance (LMI) is.
Out of the 1,000 people who took part in the survey 8% thought that LMI protected them with almost 18% thinking that it protected both them and the lender. Buyers in the age bracket of 18-29 were the most likely not to know what LMI was with a higher proportion of women (45%) not knowing what LMI is versus 37% of men.
On a State by State comparison, Victoria had the highest proportion of buyers who did not know what LMI was (46%) followed by Queensland (40%), Western Australia (39.6%) with NSW the most knowledgeable State coming in at 34.6%
CEO for Mortgage Choice, Susan Mitchell, said in a statement, "For many first home buyers, LMI is likely to be a cost they have to pay to get into the property market, particularly if they do not have a deposit that is at least 20% of the purchase price. The reality is that saving for a home deposit is a major challenge for first home buyers and this has been the result of strong price growth over the last few years."
Ms Mitchell went on to say that it was concerning that a large proportion of Australians had either a limited or no understanding of LMI and that lenders should take an active role in educating borrowers.
For a detailed explanation as to what LMI is visit the Lenders Mortgage Insurance entry on Wikipedia.
As you may be aware the Financial Ombudsman Service ("FOS") periodically release and update documents to assist both consumers and Financial Service Providers ("FSPs") in how they come to the decisions that they do.
This month we have reviewed and re-produced an extract from the FOS Approach to Early Release of Superannuation which you can read below:
2.1 Grounds for Early Release of Superannuation
There are limited circumstances in which a person may apply for their superannuation to be released early to help meet their loan obligations. These are:
Severe Financial Hardship
A person who has received an eligible government support payment continuously for 26 weeks may be entitled to an early release of superannuation on the grounds of several financial hardship. On this basis, a person may access up to $10,000 once a year. To do so, they must obtain a supporting letter from DHS and then apply directly to their superannuation fund. The payment can be used for any purpose and the FSP's support is not required.
Compassionate Grounds for Mortgage Assistance
A person can apply for early release of superannuation on specific compassionate grounds. One of these is mortgage assistance to prevent the foreclosure of a mortgage, or the exercise of a mortgagee's power of sale over the person's principle place of residence. This process is administered by DHS. Foreclosure is rate, so this article focuses on the power of sale.
DHS may approve the release only if the borrower provides a written statement from the mortgagee that:
In our experience in dealing with mortgagee sales at LCollect we have found that it was not appropriate for the FSP to support an early release of superannuation because better alternatives were available or it was unlikely that any such release would assist the borrower in overcoming their financial difficulty. In almost all instances, where a FSP declined to support a release, we found that decision was appropriate.
Note: Please note that this article does not constitute legal advice. If in doubt you should seek your own proper, independent legal advice.
Several councils located in the Bowen Basin Local Government Area in Queensland are attempting to recoup $10 million in unpaid rates.
The Bowen Basin, which covers an area of approximately 600km long by 250km wide, extending from Collinsville to Moura, has been hit hard by the downturn in the mining industry with unpaid rates impacting heavily on council cash reserves. Mayor Kerry Hayes, of Central Highlands Regional Council based in Emerald, said, "At the moment we have about 16 properties we've indicated, and we've sent the letters out to those ratepayers ... this is the last course of action. As a council and as a business, if the money isn't coming in then obviously works and capital expenditure can't happen".
Pursuant to the Local Government (Finance, Plans and Reporting) Regulation 2010 properties can be sold by Council under s74:
74 Notice of Intention to Sell Land for Overdue Rates or Charges
(1) This section applies if--
(a) There are overdue rates or charges on land; and
(b) The liability to pay the overdue rates or charges is not the subject of court proceedings; and
(c) Some or all of the overdue rates or charges have been overdue for at least-
(i) Generally--3 years; or
(ii) If the rates or charges were levied on vacant land or land used only for commercial purposes, and the local government has obtained Judgment for the overdue rates or charges--1 year; or
(iii) If the rates or charges were levied on a mining claim--3 months.
(2) The local government may, by resolution, decide to sell the land.
(3) If the local government does so, the local government must, as soon as practicable, give all interested parties a notice of intention to sell the land.
(4) A notice of intention to sell is a document, signed by the chief executive officer, stating-
(a) That the local government has, by resolution, decided under this section to sell land for overdue rates or charges; and
(b) The day on which the resolution was made; and
(c) The terms of the resolution; and
(d) A description of the location and size of the land, as shown in the local government's land record; and
(e) Details of the overdue rates or charges for the land, as at the date of the notice, including details of the period for which the rates or charges have been unpaid; and
(f) Details of the interest that is owing on the overdue rates or charges, as at the date of the notice, including-
(i) Details of the rate at which interest is payable on the rates or charges; and
(ii) A description of the way the interest is calculated; and
(g) The total amount of overdue rates or charges and the interest, as at the date of the notice; and
(h) A copy, or a general outline, of sections 75 to 78.
Local Government Association of Queensland Chief Executive, Greg Hallam, said in a statement to ABC Capricornia, "For every person that doesn't pay their rates, another person has to pay for them, so it's not all equitable or ethical".
This article does is not intended to be, and does not constitute legal advice.
From 01/08/2016 in both New South Wales and Queensland, new identity requirements come into force.
In general terms, the changes mean that anyone signing a transfer of property on behalf of a mortgagee in possession must be identified. This will mean:
In our recent dealings with the Department of Human Services and a number superannuation funds concerning the release superannuation to stop a mortgage repossession, we learned some interesting anecdotal information:
What can we take from all this?
The implications for the Australian market as evidenced in Genworth's share price dropping is that there are now more options available to lenders for lenders mortgage insurance. Westpac was reportedly 12% of Genworth's book.
So what are the possible implications for mortgage default / lenders mortgage insurance claims moving forward?
Many lenders have noted the tightening of what LMI will pay out on, with a trend to very strict enforcement of all sub limits. With limited competition in the LMI industry, there were not many competitive forces in play. If this is the start of a trend to offshore LMI by the big four banks, it may give lenders more room to negotiates with LMI providers in the future and subsequently obtain better deals and less restrictive sub limits. This has the potential to save lenders thousands of dollars in LMI claims.
Many commentators have already identified the risks the the Australian LMI providers. QBE was about to list its LMI.
Watch this space.
The ANZ have announced today that a 12 month moratorium will be granted on the sale of farms in drought stricken areas in both Queensland and New South Wales.
The announcement builds on the existing support available to drought affected farms in Queensland and New South Wales and includes:
The Financial Ombudsmen Service ("FOS") released its approach to Mortgagee Sales. This includes awarding compensation to a debtor if a property is sold below market value.
Broadly, FOS look to see that reasonable care has been taken in the sale process to sell the property at market value. To determine market value, a sworn valuation from at least one independent registered valuer is necessary. Of note, if the property market is in a downward cycle at the time of sale, the lender does not have to wait for the market to lift or improve before selling the property.
Lenders should not rely on a forced sale value. If FOS investigate a dispute, they will ask for a copy of the market valuation.
In marketing the property, at least one proposal should be obtained including marketing strategies, to sell by auction of private sale, any work necessary to prepare the property for sale. A marketing strategy can include print ads, online adds, property signs, flyers, inspections by appointment or public inspections, flyers. The campaign for an auction should be 4 weeks in length with open house inspections each week.
FOS make specific reference to selling the property as a mortgagee sale or not, and note that such an advertising campaign depends on the circumstances of each sale.
FOS will ask for proof of the marketing campaign including copies of newspaper advertising and internet advertising in the event of any dispute.
You can read more about the FOS requirements here.
On 1 December 2011 the Victorian Government started the Farm Debt Mediation Scheme. In Victoria it is now compulsory to offer mediation to farmers before initiating recovery proceedings on farm mortgages.
To those familiar with the NSW Farm mediation, it is very similar. In Victoria, a farmer has 21 days to respond to an offer to mediate, otherwise a creditor can commence action as they normally would.
The mediation is a structured negotiation process with the mediator being neutral and independent. The mediators role is to facilitate discussion, not provide advice. The scheme is administered by the Department of Primary Industries, and applies to;
In this article, we look at why it is beneficial as a mortgagee to be in control of the sale process as opposed to a Bankruptcy Trustee realising your mortgaged property to minimize any possible loss in the collection of your debts. This article is not a legal opinion or legal advice and should not be relied on as such.
A mortgagee must firstly have a right to possession for this to apply. A mortgagee's rights to possession can be found in s57 of the Real Property Act.
Very broadly, a default in accordance with an agreement (eg a loan contract) is required before the Mortgagee has a right. Typically, most actions taken by a mortgagee are a result of a loan being in arrears. However there are often many other conditions in standard agreements that if breached will constitute a default giving the mortgagee a right to commence action to obtain possession.
These can include an act of Bankruptcy, failure to pay council rates, failure to pay land taxes associated with the property or failure to progress building works in adequate time (these conditions will vary from agreement to agreement, you should read each agreement to get an idea about what conditions may apply in your specific circumstances). In case of a defended matter, a court will determine if the breach of a particular term is serious enough to warrant a default under the agreement.
Generally monetary defaults are considered to be defaults, though were a court can see a debtor reducing the arrears balance, the Court can be hesitant to give a Possession Order.
In tight LVR situations, it is vitally important to keeps costs to a minimum in order to avoid a loss.
A High Court case in 1933, Universal Distributing Co Pty Ltd (In Liq)  HCA 2 (available on Austlii) which has since been affirmed and applies to real property stated;
If a creditor whose debt is secured over the assets of the company come in and have his rights decided in the winding up, he is entitled to be paid principal and interest out of the fund produced by the assets encumbered by his debt after the deduction of the costs, charges and expenses incidental to the realization of such assets. The security is paramount to the general costs and expenses of the liquidation, but the expenses attendant upon the realization of the fund affected by the security must be borne by it. The debenture-holders are creditors who have a specific right to the property for the purpose of paying their debts. But if it is realized in the winding up, a proceeding to which they are thus parties, the proceeds must bear the cost of the realization just as if they had begun a suit for its realization or had themselves realized it without suitThis principle by itself seems reasonable. However put this into the context of a how a Trustee charges compared to the costs for a mortgagee in possession, and it becomes clear that the Trustee is much more likely to incur more costs;
Costs that are common to a mortgagee and a trustee in realising the security;
- Solicitors costs in obtaining possession (though
these costs can vary significantly from firm to firm - LCollect in
conjunction with Collection Law Partners offer a very competitive price.
We continuously come across examples where other firms charges are more
- Court Fees
- Sheriffs fees
- Real estate agents fees (advertising commission)
- Property maintenance (if necessary)
- Any unpaid council rates, strata fees, land taxes etc.
- Solicitors fees contract for sale of land and associated disbursements
Costs that are unique to a Trustee:
- Time charged at a Trustees standard hourly rate (typically in excess of $300 per hour) for time spent on a file. This would include all time spent instructing a solicitor to obtain possession, engaging real estate agents.
Whilst it is true that the mortgagee would also be spending time on the file, this time is often already a sunk cost of the mortgagee as it already has staff that can action these as required. If it is not a sunk cost, the mortgagees standard hourly rate would most likely be cheaper than a Trustees.