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A Mortgagee Auction

PPG_Blog_July_image 2_mortgagee auction

Sometimes called ‘mortgagee in possession’ sales or ‘foreclosures’, a mortgagee auction occurs when a property owner defaults on their mortgage, and the bank sells the property through a real estate agent based on an independent valuation.

Whilst none of us want to pay more than we have to, it’s not quite true that mortgagees will sell at just any price, or at a price sufficient to clear just what they’re owed. The law requires that they sell at market value (established via auction), and account to the defaulting borrower for any proceeds above what is owed under the mortgage. Also, banks don’t want to engage in fire sales: fire sales lose money, adversely affect banks’ balance sheets, share prices, and investor confidence.

In response to the growing number of homeowners struggling to meet their repayments, the Australian Bankers’ Association launched a website, www.doingittough.info, to help encourage customers to contact their bank before repossession is the only option. Banks will only reclaim a property as a last resort.

Savings of 10 to 20% on the market price are possible if buying property at a mortgagee auction. However, whilst a lot of people are focused on snaring a bargain, real estate fundamentals — such as location and design of a property — are still just as pertinent when buying a property at a mortgagee auction.

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