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 -
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.
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.
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.
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.
Thursday, September 28, 2017 - Posted by Michael McCulloch
In Compton, a city in the south of California, a repossession has gone dramatically wrong.
Footage posted on Facebook shows a man riding a tow truck bashing at the windows after his car was repossessed. In the video the man can be seen bashing at the window of the tow truck while the vehicle is literally dragged along the road. Footage of the original repossession has not been posted online however reports are that the incident occurred over a stretch of approximately 18 kilometres.
The Sheriff's department said in a statement to the media, "The tow truck driver noticed the owner of the vehicle riding on the back of the tow truck, holding a crow bar, and shattering the tow truck’s rear window".
While the tow truck was damaged no one has been arrested and charged.
Source: Press Telegram - Wild Video Shows Compton to Long Beach Car Repossession Gone Bad
The final transitional period provided under the Personal Property Security Act 2009 ("PPSA") has now expired.
What does this mean?
The transition period allowed until 30/01 for registrations that were migrated without an end date or with missing or incomplete fields to be updated and / or changed to ensure that your interest remained protected. With the transition period having now lapsed if you did not take action before this date you may find that your interest cannot be located on the PPSR.
Can amendments be made after the transition period?
In most cases the answer to this question is "yes" however some migrated registrations will need to be re-lodged.
What if there is no end date registered on the PPSR?
If no end date was entered the registration will remain on the PPSR until the expiry date recorded on the original registration or when the registration is discharged.
What happens if a registration is defective?
A registration will be deemed to be defective if it does not comply with s164 and s165 of the PPSA -
Personal Property Securities Act 2009 - Section 164 Defects in Registration - General Rule
(1) A registration with respect to a security interest that describes particular collateral is ineffective because of a defect in the register if, and only if, there exists:
(a) a seriously misleading defect in any data relating to the registration, other than a defect of a kind prescribed by the regulations; or
(b) a defect mentioned in Section 165.
(2) In order to establish that a defect is seriously misleading, it is not necessary to prove that any person was actually misled by it.
(3) A registration that describes particular collateral is not ineffective only because the registration is ineffective with respect to other collateral described in the registration.
Personal Property Securities Act 2009 - Section 165 Defects in Registration - Particular Defects
For the purposes of paragraph 164(1)(b), a defect in a registration that describes particular collateral exists at a particular time if any of the following circumstances exist:
(a) in a case in which the collateral is required by the regulations to be described by serial number in the register--no search of the register by reference to that time, and by reference only to the serial number of the collateral, is capable of disclosing the registration;
(b) in a case in which the collateral is not required by the regulations to be described by serial number in the register--no search of the register by reference to that time, and by reference only to the grantor's details (required to be included in the registered financing statement under Section 153), is capable of disclosing the registration;
(c) if the registered financing statement (as amended, if at all) indicates that a security interest in the collateral is a purchase money security interest (to any extent)--the security interest is not a purchase money security interest (to any extent) in the collateral;
(d) in any case--circumstances in relation to the data related to the registration that are prescribed by the regulations.
What if I need further assistance?
We recommend that you obtain you own independent legal advice or contact the PPSR National Services Centre on 1300 007 777
Tuesday, April 19, 2016 - Posted by Philip Harvey
Capital Finance voluntarily reported a breach of the National Consumer Credit Protection Act in failing to issue Default Notices before repossessing motor vehicles and the failing to issue the relevant notices after repossession.
Upon investigation by ASIC, it was found that in in a 4 month period from March 2015 to June 2015 Capital Finance had:
- In 55 instances, not issued Default Notices prior to repossessing a motor vehicle secured under the Contract; and
- In 3 instances failed to issue the mandatory Notices after repossession.
58 infringement notices were issued which totalled $493,000 for breaches of the Code.
It is important to have robust processes and procedures in place that guard against this. It would be interesting to know what the root cause of this issue was (eg change of staff, implementation of a new system).
Source: Daily Telegragh
Monday, February 22, 2016 - Posted by Philip Harvey
In the US, a father took his baby for an outing to go shopping, but left the baby in the car whilst he went shopping.
Whilst in the shops, a repossession agent repossessed the car, unbeknownst to him that there was a baby inside. As soon as he realised there was a baby inside, he immediately phoned the police. The repossession agent claimed that he didn't see the baby due to the car windows tint and clothing on the backseat.
The father also phoned the police believing his car had been stolen.
The baby was safely returned to the father who was cited for leaving a baby unattended in a car.
Source: Kens5 Eyewitness News
Wednesday, January 27, 2016 - Posted by Philip Harvey
In the US, Winchester City considers mandatory regulation that
repossession agents must log a repossession with police before
attendance. Debt Collection agencies had been notifying police of their repossession jobs prior to attempting to repossess goods.
The new requirements to attend a police station prior to repossession to affirm the financiers right to the goods. Whilst agencies had an informal agreement in place with police to do this, the new regulations would apply to anyone attempting to repossess goods, not just debt collection agencies.
This is aimed at reducing unnecessary call outs where owners report vehicles as stolen where in fact it has been repossessed.
Friday, May 15, 2015 - Posted by Philip Harvey
A report from ABC News in America shows one repossession agent using new technology to secure vehicles.
Perhaps the single most useful piece of equipment is an innovation to the traditional tow truck that allows the tow truck driver to reverse back to a car (with the benefit of a reversing camera), extend the "towing arm" and aligning it with the vehicles wheels, then automatically deploying the second wheel lifters to the rear side of the vehicles tyres to be able to lift one end of the vehicle without exiting the tow truck.
Other gadgetry in the tow truck included:
- License plate recognition software to identify vehicles requiring repossession.
- Uses of drones with cameras mounted to scout for vehicles
- GPS tracking technology where cars have been fitted with such devices (some lenders make this a condition of the loan in the US)
- Engine immobilisers (some lenders make this a condition of the loan in the US)
From the video, it was difficult to see how the tow truck driver could actually concentrate on driving the tow truck. A link to the ABC video is here.
Tuesday, May 12, 2015 - Posted by Philip Harvey
This scenario involving a repossession was recently dealt with in our office. All references, details, names have been altered for Privacy Purposes.
In attempting to repossess a security (interest listed on the PPSR) we became aware it was in the possession of a 3rd party. The the third party engaged a lawyer who requested a copy of the notice issued pursuant to s120 of the PPSR whose header reads: Enforcement of security interests in liquid assets - general, and provides that a written notice must be given 5 business days demanding payment of the amounts owed 5 days before any seizure can occur.
Relevantly, it is noted within s120 that this section of the PPSR does not apply to collateral that is predominantly used for person, domestic or household purposes. As our clients security was of this nature, s120 did not apply and no notice was required under this section.
Furthermore, it is also noted that obligations under the Privacy Act would prevent any such disclosure.
With all our agents on the ground in the area on the lookout for the security - we are hopeful of a positive outcome for our client soon - whether that be a negotiated outcome or repossession of the security.
The above does not constitute legal advice and should not be relied on.
Wednesday, May 06, 2015 - Posted by Philip Harvey
In the US, Chelmsford, three repossession agents were attempting a repossession of a 2010 Dodge Challenger from a debtors house. Having heard music in the garage, they knocked whilst identifying themselves. The debtor came out with a gun aimed at on the the repossession agents, before returning inside.
The police were called who then called in the SWAT team who were able to negotiate a peaceful arrest.
This article was sourced from CBS Boston.
Friday, March 27, 2015 - Posted by Philip Harvey
ASIC conducted an investigation on BMW Finance and found that between January 2014 and July 2014:
- BMW Finance's agent had illegally entered onto residential property
to repossess a vehicle without obtaining consent, in contravention of
s99(1) of the National Credit Code (NCC);
- BMW Finance failed or delayed in providing customers with a written
notice setting out their rights, obligations and available options after
repossessing a mortgaged vehicle in contravention of s102(1) of the
- BMW Finance delayed in providing customers with a written notice
setting out their rights, obligations and available options after the
voluntary return of a mortgaged vehicle in contravention of s85(3) of
This is a timely reminder for anyone involved in repossessions that the relevant statutory notices must be issued in the specified time frames and to insure your agents comply with all relevant legislation and that your agents have appropriate Professional Indemnity Insurance in place to cover such breaches.