Mortgagees, please take note

An interesting snippet in the news last week told us that investors tend to default on a home-loan about 1.5 times more than owner/occupiers do. We can't say we're surprised by this - we often hear about tenants having to fend off the bank when the landlord goes belly-up.

In fact, it occurs so frequently that we've written a factsheet about it - you can find it here. We've also discussed it previously on the Brown Couch.

As it happens, it's a very good idea to familiarise yourself with the process of what we call a 'mortgagee eviction', because the banks (and their lawyers) don't always deliver the right message. All too often we're seeing copies of letters that look like this:

It is a piece of correspondence that is apparently designed to replicate an official notice. It says:

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NOTICE TO VACATE

1. You are in occupation of the Property.
2. The Mortgagee has not consented to your occupation of the Property.
3. The Mortgagee is now entitled to take possession of and sell the Property.
4. The Mortgagee requests that you vacate the Property by xx/xx/xxxx.
5. If you do not comply with this notice, the Mortgagee will immediately exercise its rights under the mortgage, including its right to take immediate possession of the Property and to sell the Property.
6. The Mortgagee makes no admission that you have any interest in or right to occupy the Property.
7. The Mortgagee reserves its rights, irrespective of your compliance with this notice, to evict you from the Property immediately.

--

But the grounds upon which a demand of this kind - for a tenant to surrender a property to the mortgagee - are spurious. In fact, acting in compliance with a notice like this one could land you in a spot of bother. If the landlord comes good with their mortgage payments before the mortgagee obtains an actual order in the Supreme Court - entitling them to possession, enforceable by a Sheriff - you could be pinged for abandonment of your tenancy.

These faux 'notices' are nothing new, but the Tenants' Advice & Advocacy Services are currently observing a worrying increase in their use. If you find one in your mailbox, please give your local TAAS a call for a quick chat before deciding what to do. Don't be bluffed.

Our Principle Solicitor, Mr Grant Arbuthnot, has noted this increase with dismay. He has drafted, and asked us to make public, the following notice to mortgagees:

Mortgage holder = lender

WARNING: pedantic rant follows.

Now see here, you lot. Let's get this straight.

The term 'mortgage holder'. It refers to a lender.

The lender holds the mortgage (that is, a legal interest in property) as security for the loan they've given.

The mortgage is given by the borrower. For this reason, the borrower is sometimes called a 'mortgagor' (and the lender a 'mortgagee'). If you want to call the borrower anything else, they should be called a 'mortgage giver'. You're probably better off just calling them a 'borrower'.

Long-time Brown Couch readers might recall that we've raised this issue before. At the time, we booed a couple of journalists for misusing 'mortgage holder'. Seems we didn't go far enough.  Seems that every journalist and sub-editor is doing it.

Now we've got the Federal Government – and even the otherwise learned National Housing Supply Council – misusing 'mortgage holder' for 'borrower'.

Seems everyone in Australia is getting it wrong.

Mind you, in other countries people get it right. Do a quick google of the term 'mortgage holder' and you'll find any number of international sources, including dictionaries, that refer to mortgage holders as lenders. And you'll find a bunch of Australian sources doing the opposite.

Keep it up and we'll probably end up also mixing up 'mortgagee' and 'mortgagor', while the rest of the world thinks we're babbling idiots.

Mortgage holder = lender.

Pedantic rant ends.

Mortgagee evictions

The night before last, Ten News had a distressing story about four families evicted from their homes in Silverwater by a mortgagee, after their landlord defaulted on his loans.



There's some good news now: Mission Australia has helped the families out with temporary accommodation and other assistance. Thanks goodness – it is cold and wet in Sydney tonight.

Eviction by a mortgagee is a real worry, and it can happen to anyone. If you rent, you typically won't know whether your landlord owns the property subject to a mortgage (mind you, most landlords do); and you typically won't know whether your landlord is in trouble with the mortgagee – at least, not until the trouble is intractable and the mortgagee is taking proceedings for possession of the property.

We started to see worrying numbers of evictions by mortgagees in the mid-2000s – and back then, many of those who were evicted got no notice of it at all. To ensure that tenants got at least some notice, the law was changed in 2009 – and those changes were revised and strengthened in the new Residential Tenancies Act 2010. The changes to the law mean that scenes like those on the news should not happen now.

Under the current law, you are entitled to receive notice from a mortgagee if they take proceedings against your landlord for possession of the property (s 124). Even if you don't get this notice, you are entitled to notice from the NSW Sheriff that a possession order has been made and that you will need to move out. The Sheriff must give you not less than 30 days' notice (Sheriff Act 2005, s 7A(3)). During the 30 day period, you can move out at any time, and you don't have to pay rent (Residential Tenancies Act 2010, s 122(2)(a)). (Your tenancy, in fact, ended when the Court made the possession order.) After the 30 days, the Sheriff will return and evict you, if you're still there.

According to the news report, the Sheriff did indeed notify the tenants of the pending evictions. The problem, reportedly, is that the agent then told the tenants that the trouble with the mortgagee was sorted out, and that they should stay put. Again according to the news report, the agent did so on the advice of the landlord.

Any agent who passes on that sort of advice to tenants, in these sorts of circumstances, is an idiot.

If you ever find yourself in this situation, always take the Sheriff's word over the agent's or the landlord's. If the Sheriff gives you notice that you will have to leave, prepare to leave. If the agent or landlord says not to worry, it's all sorted out, stay put, do not believe them – contact the Sheriff, and ask if they've been instructed by the mortgagee not to carry out the eviction. Unless the Sheriff says otherwise, you will have to leave.

There's a few other provisions relating to evictions by mortgagees that may be useful – read the factsheet, and contact your local Tenants Advice and Advocacy Service for more information. 

NSW State Budget: the good, the bad and the windows of opportunity...

It’s time we had a look at the NSW state government’s recently announced budget for 2009-2010 – what’s in it for tenants?

Aside from a general increase in the maintenance budget of Housing NSW (long overdue), there are three initiatives of interest. We’ll call these the much-touted “saviour” of the housing industry, an attempted medium- to long-term plan to combat homelessness, and a new subsidy to assist victims of domestic violence to move out on their own.

We’ll look at each in turn over the next few days… Starting with the saviour:

The Housing Construction Acceleration Plan.

In the words of the NSW State Treasurer, Eric Roozendaal, “this provides a 50 per cent cut to stamp duty for newly constructed dwellings up to $600,000.00 purchased in New South Wales from 1 July to 31 December 2009”. This applies to everyone except for first home buyers, who already enjoy substantial relief from stamp duty, as well as various first home owner grants. (Notably the State Governments’ contribution to such grants is to continue for another year). So, this initiative might coax landlords as well as owner-occupiers into the market for new housing in the immediate future.

The government suggests in its “Budget Highlights” package that this is an investment to “support growth and construction jobs in the housing sector”. The Urban Taskforce Australia, an organisation representing property developers, has hailed the plan as the “strongest measure taken by any government in Australia to support new home construction”. Clearly, they’re quite happy with it, and why wouldn’t they be? As a targeted economic stimulus measure, it sounds like good news. But what’s it really going to do for the housing market?

The CEO of The Urban Taskforce, Mr Aaron Gadiel, suggests “… far more people will benefit – not just first home owners. Some people who aren’t first home buyers are now likely to bring forward their home purchase to take advantage of this grant”. The Housing Industry Association’s Executive Director, Mr Graham Wolfe, puts it this way: “the saving in stamp duty provides a window of opportunity for anyone looking to buy a new home”.

“A window of opportunity”… Get in quick before the money runs out! You can’t afford to miss it!!! At these prices you’d be a fool to put your money anywhere else…

Now, call me a nay-sayer and a ne’er-do-well, but perhaps there are some very good reasons why people should NOT bring their purchases forward, simply to take advantage of yet another “saving” on stamp duty. Enticing home purchasers to prematurely increase debt in order to qualify for a stamp duty concession does not strike me as a good idea. To illustrate this point, I recommend a cursory glance over numerous comments made earlier on the Brown Couch. Start with the "numbers" tag and work your way back from there.

Correct me if I’m wrong, but isn’t this Global Financial Crisis largely the product of housing related debt? Does it not seem a little odd to try to reinvigorate the market by offering yet another incentive to borrow more money now? Can somebody in government please give me a definition of the word irony?

Still, I do see one positive that may come out of all this. It could give us a few more opportunities to test out the new “Mortgagee Repossessions” amendments to the Residential Tenancies Act, now that they’ve made their way through the legislature.

Better protection for tenants when landlords default on mortgages

Some much-welcome news: the NSW State Government has announced that it will introduce legislation this week to better protect tenants when landlords default on their mortgages and the mortgagee (usually a bank) takes possession of the premises – and evicts the tenant.

(Well done!)

We don't yet have the detail of the legislation, but the Minister for Fair Trading, Virginia Judge, says that it will provide:

• Immediate introduction of a 30 day notice to vacate once a mortgagee is entitled to possession of rented premises

• Permit a mortgagee who becomes entitled to possession of a premises to authorise the release of the tenant’s rental bond

• Relief for relocation expenses, with tenants who receive an eviction notice to withhold all future rent and / or recoup advance payments – i.e. a rent holiday, or compensation from the mortgagee.

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All of which represents a massive improvement on the current law, under which tenants have been evicted by mortgagees with little or no notice, and no real prospect of compensation. (Click here to download a briefing paper by the Tenants' Union on the problems with the current law.)

The TU has previously asked the Government to deal with the mortgagee eviction problem as a matter of urgency, so we are very pleased that action is being taken now.

The TU and the Tenants Advice and Advocacy Services saw a wave of these cases a couple of years ago, when interest rates were rising. We expect to see another wave in the coming months, as unemployment rises. This time, it looks like the law will better protect tenants.

Well done, Minister Judge.