A mortgagee sale happens when a person can’t pay back money they owe to the bank. The bank sells their property to get back the money it’s owed.
The mortgagee sale process is different to the normal process of selling a rental property.
The mortgagee sale process
When a landlord is in default with their mortgage payments, the bank must give:
- at least four weeks' notice of the nature and extent of the default
- the date the default must be remedied by
- information on what the bank can do if the default isn’t remedied in the specified period (eg, sell the property).
If the default isn’t remedied, the bank can repossess the property and becomes the landlord. The property owner should get independent advice on the mortgagee sale process.
The bank becomes the landlord
The bank must let the tenants know when it takes over as landlord. The tenant then pays their rent to the bank. If the original landlord insists that the tenant pays rent to them, the tenant can apply to the Tenancy Tribunal for help.
Once the bank has possession, it has the same rights and responsibilities as any landlord. The bank is bound by the Residential Tenancies Act 1986 and by the tenancy agreement.
If the bond is held by Tenancy Services, the bank has 10 working days to tell us that they’ve taken possession of the property. The bond stays with us, and the bank replaces the landlord on the bond record.
If the previous landlord applied to the Tenancy Tribunal to get the bond back before the bank took over, they may be refunded the bond. If this happens, it may mean the bank has no bond (or a reduced bond) to claim if the tenant breaches their obligations.
Obligations during and after the sale
When the bank sells the property, they have the same obligations as every other landlord.
Whoever buys the house becomes the new landlord from the date of settlement. They inherit the tenancy agreement, along with all the terms and conditions.
Special rights for fixed-term tenancies
With a mortgagee sale, the bank (or the person who buys the property at the mortgagee auction) has special rights for dealing with fixed-term tenancies. In this situation, the bank or the new owner can give notice to end the tenancy as if it were periodic. The tenant can also give notice to end the fixed-term tenancy as if it were a periodic tenancy.