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Power of sale, property law, property lawyer, Shire Legal, Miranda, Sutherland Shire, Sydney, New South Wales

Understanding Mortgagee Responsibilities and Mortgagor Rights in Power of Sale Transactions

conveyancing act mortgage power of sale property Jan 08, 2025

When a mortgagee exercises the power of sale over a mortgaged property in New South Wales, they are bound by specific legal obligations to ensure fairness and transparency. Section 111A of the Conveyancing Act 1919 (NSW) codifies these duties, emphasising the mortgagee's responsibility to secure an appropriate sale price for the property.

Understanding Section 111A

Section 111A(1) mandates that a mortgagee, when exercising a power of sale, must take reasonable care to ensure the property is sold for:

  • Market Value: If the property has an ascertainable market value at the time of sale, it should not be sold for less than this value.

  • Best Obtainable Price: If the market value cannot be determined, the property should be sold for the best price reasonably obtainable under the circumstances.

This statutory duty aligns with the common law principle that mortgagees must act in good faith and take reasonable steps to obtain a fair price, thereby protecting the interests of the mortgagor and other stakeholders.

Application to Agents

Section 111A(2) extends this duty to agents appointed by the mortgagee to sell the property. This ensures that both the mortgagee and their agents are held to the same standard of care in the sale process.

Implications for Purchasers

According to Section 111A(4), a purchaser's title cannot be challenged on the grounds that the mortgagee breached their duty under this section. This provision maintains the integrity of the purchaser's title, even if the mortgagee failed to meet their obligations. However, individuals who suffer loss due to such a breach may seek damages against the mortgagee.

Non-Excludability of Duties

Section 111A(5) stipulates that any agreement attempting to exclude or modify the mortgagee's duties under this section is void. This ensures that mortgagees cannot contract out of their statutory obligations, maintaining consistent protection for mortgagors.

Relationship with Common Law

Section 111A(6) clarifies that this statutory duty does not affect existing common law rules regarding a mortgagee's duty to account to the mortgagor. Therefore, traditional obligations coexist with the statutory requirements, providing a comprehensive framework for mortgagee conduct during the sale process.

Temporal Application

Section 111A(7) specifies that the duties apply to all mortgages and charges, regardless of when they were made, but only in relation to defaults occurring after the commencement of this section. This ensures that the law applies prospectively, respecting actions taken before its enactment.

Practical Considerations for Mortgagees

To comply with Section 111A, mortgagees should:

  1. Obtain Professional Valuations: Secure independent valuations to determine the property's market value accurately.

  2. Engage Competent Agents: Appoint qualified real estate agents who understand the duty to achieve the best possible price.

  3. Implement Effective Marketing Strategies: Ensure the property is adequately marketed to reach a broad spectrum of potential buyers, thereby maximizing the sale price.

  4. Maintain Transparency: Keep detailed records of the sale process, including valuations, marketing efforts, and communications, to demonstrate compliance with statutory duties.

Failure to adhere to the obligations under Section 111A can result in:

  • Damages: Affected parties may claim compensation for losses incurred due to the mortgagee's breach of duty.

  • Reputational Harm: Non-compliance can damage the mortgagee's reputation, affecting future business operations.

What mortgagors need to be aware of

While a mortgagee has significant powers when exercising their right to sell a property, the mortgagor retains critical rights and obligations during this process.

  • The mortgagor has the right to receive surplus proceeds from the sale after the mortgagee has recovered the outstanding debt and associated costs.
  • The mortgagor can challenge the sale if they believe the mortgagee failed to comply with their duties under Section 111A of the Conveyancing Act 1919 (NSW), such as neglecting to secure a fair market price.
  • The mortgagor remains obligated to cooperate during the sale, which may include providing access to the property for inspections and ensuring no actions hinder the sale process.
  • In cases where the mortgagor rectifies the default before the sale is finalised, they may also exercise their right to redeem the property by paying the outstanding debt and associated costs in full, potentially halting the sale altogether.

These rights and obligations ensure a balance between protecting the mortgagee’s interest and safeguarding the mortgagor’s equity in the property.

Conclusion

Section 111A of the Conveyancing Act 1919 (NSW) establishes clear duties for mortgagees exercising a power of sale, emphasizing the necessity to secure a fair and reasonable price for the property. By adhering to these statutory obligations, mortgagees protect the interests of mortgagors and uphold the integrity of the property market in New South Wales.

Contact the Shire Legal team if you have any questions.

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