When a bank has forclosed on and sells a home or piece pf property, how far does the bank have to go to get the highest price? That question is one that commonly comes up in hallways all over Australia. From the Courts to the lawmakers, from businessmen in banking to worm farmers, lenders’ obligations to borrowers in foreclosure sales is a somewhat controversial topic. There has been quite a bit of recent discussion arising from court cases in which judges have found that mortgagees don’t always act in the best interest of the mortgagors.
A Court in New South Wales found that a bank failed in its duty “to act in good faith” towards a farmer who had been foreclosed on. The issues weren’t whether or not the bank should have foreclosed on the loan. It was indisputable that the farmer was in default. The case involved the manner in which the bank went about selling up the mortgagor’s assets.
The plaintiff claimed and the judge agreed that the bank failed in its duty under New South Wales “not to willfully or recklessly sacrifice the interests of the mortgagor.” That failure led to a sale price of $285,000 for a property whose fair market value was close to half a million. The judge awarded 10 years of interest to the plaintiff in this case. The effects have rippled throughout the banking industry.
As reported by the plaintiff’s attorney, at the time of the foreclosure the plaintiff’s marriage was on the rocks and when his wife left he was forced to make payments to her which put him behind in his loan repayments. That is when the bank took possession of his property and sold it.
Prior to this court case, banks would take possession of a property and go on advertising campaign to get valuations before selling it. There is no statutory basis in New South Wales to cover this situation. Case law only says that the mortgagee in possession of the property must “act in good faith.” This good faith requires that the mortgagee not act recklessly.
However, Commonwealth Corporations Law requires that a mortgagee in possession take all reasonable care to sell a property at its fair market price. The interests of the borrower in should not be sacrificed. In Queensland and the Northern Territory statute law does exist along these lines, similar to the Corporations Law duty of care.
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