Lenders and their agents need to comply with new obligations to take reasonable care when exercising their power of sale.
New laws which started on 1 November 2011 require lenders to take reasonable care when exercising their power of sale to ensure land is sold for not less than its market value or for the best price that can reasonably be obtained in the circumstances.
The duty applies to mortgage sales arising as a consequence of a default after 1 November 2011, even if the mortgage was created before then.
The obligation is imposed on lenders, agents of the mortgagee or chargee appointed to sell the land, as well as real estate agents, consultant or others appointed by the lender.
Mortgagees should take the following steps:
- obtain a professional independant valuation of the land;
- Advertise the property, including details about the mortgaged property, to the largest possible group of potential purchases;
- leave the property on the market for a reasonable period of time. This usually involves allowing time to advertise adequately and provide sale information to a reasonable number of prospective purchasers and allow inspection and assessment of the property; and
- where available, conduct an auction of the property – it’s the best way to test the market.
If the duty is breached, a person can sue. But it is not a ground to challenge the purchaser’s title.