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BFCSA: Bankers ignore "good faith" and duty to customers when exercising mortgagee in possession repos

Posted by on in ROYAL COMMISSION URGENT
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Mortgagees’ Power of Sale and the Duty to Sell at Market Value
Joan Squelch
School of Business Law and Taxation
Curtin University of Technology
 
Abstract
In times of an economic downturn and financial hardship, many homeowners face the risk of having their homes repossessed and sold. When mortgagors are unable to pay their mortgage loan and they default on their payments, the mortgagee, such as a bank, building society or
other financial institution that provides mortgage loans, has a right to exercise a power of sale, providing certain requirements are met. In such circumstances the mortgagee generally acts in his or her own interest and does not represent the interests of the mortgagor. However, over
many decades the courts have held that the mortgagee does have a duty to act in good faith when exercising a power of sale. A question that does, however, arise is whether or not a mortgagee has a duty to sell the mortgaged property at market value and at a favourable time
to get the best possible price. The aim of this article is to consider the mortgagee’s duty to the mortgagor when exercising a power of sale with specific reference to the duty to act in good faith, selling at market value and the timing of the sale. The article concludes with some
guidelines that particularly pertain to financial institutions and property valuers.
 
Page 8
The courts have consistently held that a mortgagee is obliged to act in good faith, which includes taking reasonable steps to obtain a proper price for the property sold. Mortgagees are obliged to obtain market value or a ‘fair price’. As noted by Duncan and Dixon49 if ‘it can be demonstrated
that the price obtained was substantially below the true value, this may be evidence that proper steps were not taken’ to get a fair price. However, the mortgagee does not have to delay a sale or sell at a time that is most suitable for the mortgagor. The mortgagee’s duty to take
reasonable steps to sell the property at market value is now incorporated in some state statutes, notably Queensland, Northern Territory and New South Wales.  There is also a bill currently before the Parliament of Western Australia to amend the Property Law Act 1969 to include a statutory duty to sell mortgaged property at market value. The law, therefore, imposes a greater duty on mortgagees when they exercise their power of sale.  Failure to act in good faith or to obtain market value may lead to the sale of the property being set aside, monetary damages or an injunction to prevent the sale from proceeding. Therefore, it is important for mortgagees to adopt practices that ensure the manner in which they exercise their power of sale is lawful. 
 
 
Attachments area
 
Preview attachment Mortgagees Duty to Sell at Market Value 2009 report.pdf
 
 
Mortgagees Duty to Sell at Market Value 2009 report.pdf
 
 
 
 
 
 
 
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Guest Thursday, 13 August 2020