When you have a home loan, the house is held as security. This means your lender can repossess and sell the house if you fail to make payments according to your loan contract .
If you fall behind in your mortgage payments or think you are about to fall behind, it's essential that you keep your lender informed about your circumstances, ask them for flexible payment arrangements (a hardship variation) and tell them the steps you are taking to keep up your payments.
If you fail to keep them advised about your circumstances, they will contact you and demand payment of your loan, and advise you that if you continue to not pay according to the loan agreement, they will commence action to repossess your house.
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When can a lender respossess your home?
You should contact your lender early and often during this period because they can commence legal proceedings to take possession of your mortgaged property if:
- you are in default of the mortgage by failing to pay a single instalment; and
- they have served you a default notice in writing requesting payment according to the loan agreement; and
- you have not made the required payment within 30 days (or the time specified in the notice), or you miss another payment within the 30 days.
You may be able to negotiate with the lender to postpone legal action if you can convince them that you will be able to pay when your circumstances change. It's helpful if you pay what you can towards the loan, even if you can't make a full payment. But you must act quickly because the time frames for your lender to enforce its mortgage by selling your house are quite short.
If your lender refuses to negotiate, or issues legal proceedings against you, you should apply for a mortgage hardship variation urgently with the external dispute resolution scheme to which your lender belongs or with a court using the new small claims procedure. For more information see the Factsheet - 'Home Repossession'.
For legal advice, contact Consumer Action Law Centre on 1300 881 020 or email advice @consumeraction.org.au.
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Method of sale of house from mortgage default
If you have not reached an agreement and your lender wants to enforce the loan conditions it can commence legal proceedings to repossess and sell your home by either auction or private sale.
In arranging the sale of your property for which you have been unable to meet mortgage payments or payments under an agreed variation, your lender must:
- exercise the power of sale in good faith, having regard to the interests of both parties; and
- obtain the best possible price consistent with its right to realise the security; and
- sell the property as and when it chooses to claim the security; and
- require you to move out of the premises if it can demonstrate that to do so would lead to obtaining a higher price at sale.
Note that lenders will charge reasonable expenses, including legal costs, incurred during repossession and sale where you have not made the required payments.