How to Cover Yourself in a Mortgagee Sale

If you're buying a mortgagee property, it pays to be aware of what might go wrong with your "bargain" buy. This article explains what to look out for.


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    Beware of restraints on the usual buyer protections. Mortgagee sales are a way for the bank to recoup lost costs. The bank will be striving to get back the best amount possible. And the bank doesn't want further liability hanging over the sale. Therefore, in some jurisdictions, mortgagee sales leave the buyer exposed in ways that would not happen under a normal sale of a house.
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    Check the sale and purchase agreement. Look for what is removed, crossed out, and therefore not applicable. If the normal guarantees under a sale have been removed (most likely as mortgagee sales often carry minimal protection), then you are shouldering a lot of risk. The reason that the bank removes guarantees is because they don't own the actual property and therefore don't want the risk and they want to wipe their hands clean of the property once sold on to you. Therefore, be wise and ask to check for the following in the sale agreement:
    • How the agreement treats chattels, fixtures and fittings–does the agreement remove the need to leave these on or with the property? If so, be aware! Chattels, fixtures, and fittings that you expected to remain in place might be removed. This can even be as awful as finding entire kitchen and bathrooms have been removed by the prior owner! You won't be able to sue the bank if these have been excluded in the sale agreement.
    • Vacant possession and clear title–again, watch out if these guarantees have been removed by the bank. Someone else might have a better claim to title and that means, you'd be stuck paying off the bank loan and owning nothing. Or, the prior owner may simply refuse to move and you'll be landed with the hassle of getting them out of the place.
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    Be aware that the owner or occupier of the property is likely to be one very unhappy person or family. And they may not play ball with the sale, retaliating by destroying things, removing things, and hiding things. They may even trash the house before vacating, after you have purchased it.
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    Check with your insurance company before you purchase a mortgagee property. Insurance companies are well aware of what can go wrong in the transfer of a mortgagee property and may not cover a number of things including theft, damage, and vandalism by the prior owner. It is better to be wise before the purchase than to be left empty-handed after it.
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    Check the property out prior to bidding. This means:
    • Don't rely on internet descriptions and photos
    • Don't rely on real estate brochures or phone chats with agents
    • Get to the property yourself and look it over. Take photos of each room so that you know what is there prior to the sale.
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    Be ready for the potential problems. Simply because your bank and insurance company aren't doing their best by you doesn't mean you shouldn't buy mortgagee sales. Contracts with the guarantees crossed out and lack of insurance will mean that you need to be a proactive purchaser:
    • Factor in the cost of a complete interior refit if required.
    • Factor in the cost of a garden or landscape in case the existing one is removed or destroyed.
    • Don't purchase if your own finances aren't in good shape and you don't have the financial flexibility to fix up the mortgagee property.
    • Don't rely on insurance as a fallback.
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    Grab yourself a bargain. If, after calculating all the possible hazards and still finding that the purchase is worthwhile, then go for it.


  • If you know it's a definite risk, be sure that your spare pool of money can either take a hit, or is flexible enough to cover the costs of additional fixes of maintenance.


  • If any damage or refusal to remove is viewed as a civil matter, police are not likely to involve themselves in assisting you.

Things You'll Need

  • Good assessment of property before you go ahead
  • Property/building inspector's reports (optional)

Article Info

Categories: Buying Property | Mortgages and Loans