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  1. #1
    Join Date
    Jul 2006
    Location
    Christchurch
    Posts
    302

    Default Can lenders sell your house if your don't pay off your credit Cards?

    Hello people,

    At work I'm having a great debate on whether credit card debt can be used as a reason for lenders to force a mortgagee sale to recuperate amounts of money owing. Of course we understand that the credit cards issued and the mortgage must be held by the same lending institution for this question to be asked.

    The office is split down the middle, so can you tell me your thoughts.

    Can a lender legally foreclose on your mortgage over credit card debt?
    Scott Miller - Mortgage Broker
    Ph: 03 980 4541 M: 021 34 36 48
    AMS's website My email

  2. #2
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    5,084

    Default

    Knowing the banks, I suspect that when you sign up for a CC, you are actually giving a personal guarantee for the debt, so I suspect that the bank can say 'pay up, or we'll make you bankrupt', even without the mortgage.

    Further, I suspect that, deep down in a mortgage document, there would be a clause allowing the bank to call in the mortgage if it had knowledge that you were going to go bankrupt.....

    However, the devil would be in the detail, and I haven't spent as much time as I should reading my mortgages!

    cube
    DFTBA

  3. #3
    Join Date
    May 2005
    Location
    Takapuna, North Shore
    Posts
    213

    Default

    From memory the answer is yes
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  4. #4
    Join Date
    Aug 2007
    Location
    Eastbourne
    Posts
    11

    Default

    Yes, they can, although its quite unlikely. Even though credit card debt is considered "unsecured", standard agreements allow the lender to use whatever available means to re-coup the debt in the event of non-payment. Occasionally this may be a Mortgage on a property owned wholly by said debtor. From another angle, a Mortgage allows a lender security (up to a priority amount) on a property. Allthough you may have only secured your home loans using this, if push came to shove you can bet your bottom dollar the lender will give it a go, though they would likely have additional legal costs.
    Have you ever noticed that you will always be accepted for a higher credit limit on your credit card, if you also have a mortgage with that bank? Not a coincidence.
    Interesting stuff.

  5. #5
    Join Date
    Jun 2005
    Location
    Wellington
    Posts
    1,112

    Default

    It will depend on the specific terms & conditions for the particular credit card & the particular home loan. There is usually a catch-all clause in a home loan agreement to say that the house security can be extended to any funds outstanding to the bank.

  6. #6
    Join Date
    May 2004
    Location
    Bay Of Plenty, NZ
    Posts
    3,604

    Default Rates demands

    It is also a little known fact that City Councils can also put your house to a mortgagee sale for the unpaid rates.

    There was a period in the late 90's early 2000's that the Waitakere City Council put several houses to mortgagee sale, and were successful in recouping their rates through the sale process.
    Patience is a virtue.

  7. #7
    Join Date
    May 2007
    Location
    Chch
    Posts
    773

    Default

    Quote Originally Posted by roseneath_rat View Post
    There is usually a catch-all clause in a home loan agreement to say that the house security can be extended to any funds outstanding to the bank.
    Yep, I thought it was like this too. Another reason to spread ALL borrowing around between banks.

  8. #8
    Join Date
    Sep 2007
    Location
    Auckland
    Posts
    8,296

    Default

    As part of my real estate studies I have fully read a mortgage document. The standard form from the ADLS I think. It's a real eye opener - anyone in property investment should read a mortgage at least once. It's quite a sobering document.

    Most people never read a mortgage document. You show up to the solicitors on settlement day, sit down and sign where they have indicated, there usually isn't the time or inclination to actually read all the documentation.

    From memory, the bank have all sorts of powers. They can foreclose or demand extra money at any time for just about any reason (i.e. they don't have to give a reason). They can appoint themselves as your lawyer, the entity the local council has to deal with re rates, same with body corp, stop you from going to the property and on and on it goes.

    It's a common misconception that you have to be behind in your mortgage payments for the bank to step in. This is not the case at all. If they believe you're a risky proposition (maybe because property values are falling) then they can ask for you to come up with more money or they'll foreclose.

    And the thing is they don't necessary sell at the market value either. They will sell at a figure just high enough to get their money and expenses back. So if you have a $400k property with a $200k mortgage, they can sell it for $240k which will give them their original principal back, pay the agents etc. Your equity is wiped out and there's nothing you can do about it because you've signed something giving them permission to do it - the mortgage.

  9. #9
    Join Date
    Dec 2004
    Location
    Beautiful Waitakere Ranges
    Posts
    519

    Default

    Yes, always assume that the bank can do anything they like.

    You just need to give them less incentives to do that, by paying on time and having a reasonable LVR. After all, the banks lend money to earn an income, and if they foreclose or otherwise loose a customer, they are also loosing all future income from that customer.

    So as long as you keep them happy the risk is low.
    But yes, they can demand anything they like in theory.
    High resolution Fractal Art on quality canvas: www.FractalArt.co.nz

  10. #10
    Join Date
    May 2007
    Location
    Chch
    Posts
    773

    Default

    Quote Originally Posted by Davo36 View Post
    From memory, the bank have all sorts of powers. They can foreclose or demand extra money at any time for just about any reason (i.e. they don't have to give a reason). They can appoint themselves as your lawyer, the entity the local council has to deal with re rates, same with body corp, stop you from going to the property and on and on it goes.

    It's a common misconception that you have to be behind in your mortgage payments for the bank to step in. This is not the case at all.
    Our lawyer actually (bless his cotton socks) took the time to mention this to us when we first signed a mortgage doc here - slightly shocking at the time IIRC but I guess they are lending us a large heap of cash and do hold all the cards.


 

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