Risks of Mortgagee sales

2017-10

Recently, there have been news reports on property transactions involving mortgagee sales, mentioning that the supply of mortgagee properties has increased. However, are mortgagee properties a real bargain? What devil’s details are there in these transactions that may be easily overlooked?

A mortgagee sale happens when a property owner is unable to repay the mortgage loan owed to the mortgagee bank. In such a circumstance, the mortgagee could exercise its right according to the terms of the mortgage to sell the mortgaged property and use the proceeds to offset the outstanding debt.

To protect their own interests, mortgagees may impose onerous terms in the agreement for sale and purchase. For example, the mortgagee would not warrant good title to the property, or disclaims responsibility for removing illegal structures pertaining to the property, or requires the purchaser to pay the mortgagee’s legal costs. Therefore, before making any purchase decision, consumers should read carefully all the terms and conditions in the sales documents to make sure that they fully understand the contents thereof, and assess cautiously whether it is worth taking the related risks. In the event of doubt, consumers should seek legal or professional advice.

Consumers should also be aware of the condition of the property and whether there are any outstanding management fees, rates and government rent etc. in respect of the property. If an estate agent is appointed to handle the purchase of a residential property to be sold by a mortgagee, the purchaser should enter into a prescribed estate agency agreement with the estate agent to protect his/her interests. Under the Estate Agents Practice (General Duties and Hong Kong Residential Properties) Regulation, estate agents are required to provide the purchaser with a completed Property Information Form together with a copy of the land search of the property, unless the purchaser specifically waives his right to receive the same. If subsisting encumbrances are shown on the relevant land search record, estate agents should alert the purchaser of the relevant risks and advise him/her to seek legal or professional advice. For instance, if the land search reveals that there is a Memorandum of Outstanding Management Fees, consumers should find out from the mortgagee who is responsible for the settlement of the arrears and for the discharge of the Memorandum. Although the mortgagee may not agree to bear the responsibility, consumers should at least take such liabilities into consideration when offering a price to the mortgagee so as not to be out-of-budget later.

Finally, the writer would like to remind consumers not to enter into an agreement for sale and purchase hastily before they have fully ascertained all the relevant information relating to the mortgagee property.

Ruby Hon
Chief Executive Officer
Estate Agents Authority