Mortgagee Auctions & Mortgagee Sales (Foreclosures) in New Zealand

[jeremypyle]

Hi,


For a number of years now, I have enjoyed searching for houses for Dad to purchase. I am grateful to him for everthing he has taught me.

A large number of the houses Dad purchased were at mortgagee auctions. (foreclosure auctions) One day, I was searching for mortgagee auctions on Google. I was trying to find a website that listed mortgagee auctions & mortgagee sales. I failed to find anything useful.

From that moment, I decided that a website that shows every mortgagee auctions & mortgagee sale in New Zealand, would be of immense value to investors throughout the country. I formed a property website called www.MortgageeAuctions.co.nz. This went live about Christmas time, 2007.

One thing I am certain of is that mortgagee auctions have become increasingly popular in recent years, due to bargain hunters. When I was younger, Dad sent me into a mortgagee auction to bid for him as he was going to be late. I was the only bidder in the room. They didn't even bother reading the conditions of sale. Today, however, things have changed dramatically. Mortgagee auctions are extremely popular.

I would love feedback from others who have purchased property at mortgagee auctions. Please share your property stories by replying to this post. What are your predictions concerning future mortgagee auctions & Sales? Do you expect the number to increase or decrease? What will the future reveal?

[Bitter Renter]

The knife catchers will crowd the mortgagee auctions for years, following the market all the way down, until they have no more assets to lose. Then the real investors (smart money) will come back when mortgagee properties are available that yield 4% above the return on a risk free six month NZ government bond, currently 7.5%. That would require a 11.5% rental yield today for property investment to make sense. That means even mortgagee sale properties are still around 100% overpriced.

[Davo36]

I have bought 2 properties via mortgagee auctions.

The first is my house where I live and where I'm sitting right now. It wasn't advertised as a mortgagee sale at all but turned into one part way through. It was advertised with a price. I signed it up an hour after seeing it (wife hadn't even seen it). Really liked it and just thought it needed a really good cleanup.

To cut a long story short, got a building inspection and there was heaps wrong with it so went back at $60,000 lower. Vendor said no. Turned out mine was the 3rd contract to fall and so mortagees said "Times Up" and put it up for mortgagee sale. I already had all the reports I wanted, finance etc. so made the mortgagee's the same offer I made the vendor. They said no but then rang back the next day and said "Can you settle in 2 weeks?" I said yes.

And then the fun began. I hadn't bought a property via a mortgagee sale before. The agreement they want you to sign is the standard S&P Agreement with all the vendors warranties removed so:

• They don't warrant to have any fixtures or fittings included in the sale. So the owner could theoretically remove all doors, kitchen cabinets, carpets, light fittings, etc. etc.
• They don't give you vacant possession. So you may have to kick out a severely upset owner (their friends, big dogs etc.)
• Normally the vendor warrants that the place will be provided intact as it was when it was seen and signed up by the purchaser. Normally the vendor has it insured up until settlement has taken place then the purchaser insures it. The revised agreement takes out all these warranties so it's at the purchaser's risk from the time it's signed up. I could only get insurance for some things, malicious damage by the tenant was specifically excluded. So theoretically the owner could kick holes in every wall, take a chainsaw to the place or in fact burn the place to the ground and you'd still have to settle.
• You can't object to title, LIM, or have any other conditions like finance or whatever.

So there are very big risks involved here. We were due to settle on a Wednesday and the Sunday night before this at around 10:00 pm when we were just getting to sleep, the owner (turned out to be an alcoholic woman in her 40s) rang us up and made all sorts of comments like "You don't have to worry, you have the place insured etc." This made us worry of course, wondering what the heck she was doing to the place. My wife was in tears. At this point it didn't seem worth it.

It all turned out OK though. On the Wednesday, the woman had left the place, her mother (who was a lovely little old lady who hugged us both) was there to clean up the mess with other family members. I gave them an extra 3 days to clean up because it was chocka with crap. I changed the locks straight away and let them in each day and locked up at the end. They even vaccumed on the last day.

Interesting experience. That was 2 years ago. We've totally done up the place (bit more landscaping to do) and love it here. It was indeed a very good buy and is worth a fair bit more than what we paid plus the fixing-up costs. Having said that, not sure I would do it again. If I did buy another mortgagee property it would have to be very very cheap to make up for the risks and hassles.

David

PS: The second property was some office space in Auckland CBD. Much easier all round, but turned out to be a bit of a dog so sold it on.

[Davo36]

The knife catchers will crowd the mortgagee auctions for years, following the market all the way down, until they have no more assets to lose. Then the real investors (smart money) will come back when mortgagee properties are available that yield 4% above the return on a risk free six month NZ government bond, currently 7.5%. That would require a 11.5% rental yield today for property investment to make sense. That means even mortgagee sale properties are still around 100% overpriced.

Bitter Renter, you have to let go of the anger. I reckon things will slow down a bit too and am waiting for it but I don't reckon it'll be as bad as you say.

This is just the way markets work. People see other people making lots of easy money so they jump on the bandwagon too and in a short time you have a way over priced asset and then like reef fish they all turn away suddenly and in terror...

This will happen again and again. Next time, jump on for the ride - just be sure to not get caught up at the end.

David

PS: I think the smart money is chasing bigger fish (seem to be thinking in fishy analogies tonight!). They wouldn't even bother with residential property, doing complicated finance things, possibly big commercial property deals or big business deals. They don't grub around with houses!

[Cadmium]

Thanks for sharing this info David!

I am looking at a mortgagee sale right now. It failed to sell at auction recently and is now back on the market "by negotiation".

I will be making a ridiculously low offer to the bank to allow for all the trouble I might be buying into.

The owners are still in the house and are refusing access to view according to the agent.

These people have left a long and well documented trail of financial destruction behind themselves and I consider the risk to be high.

I will be talking to a lawyer about strategies to get them out with as little warning as possible to lessen risk of damage. (A "dawn raid" approach appeals to me in this particular case).

I would love to hear from anyone who has used legal avenues to effect a rapid expulsion as a way to reduce risk of damage.

Regards
Cadmium

[Davo36]

Stu, settle as quickly as possible. The less time they have they less they can do.

I guess you can drive by and see if it's still there and maybe what they're doing each day.

Maybe get a couple of big friends or perhaps security guards to go around there with you to take possession once settled.

I think quite a few mortgagee auctions are not actually selling. I think a low offer is probably in order. If you can't see inside then you would have to assume the worst and price accordingly I guess.

David

[Cadmium]

Good advice David,

I assume once the S&P is agreed and signed by both parties, the bank notifies the previous owners.

That is the point when the previous owners may, or may not choose to pop down to Mitre10 for a chainsaw.

If the period between the previous owners being notified and settlement is short, all the better.

Is there a minimum period of notice the bank must provide the previous owners I wonder?

In an old thread on this topic (https://www.propertytalk.com/forum/s...ead.php?t=3457), there is mention of a Bank stepping in with Police and security after threats were made so many things are possible.

All hypothetical at this point of course, but it could be an interesting opportunity.

[Cadmium]

I would love feedback from others who have purchased property at mortgagee auctions. Please share your property stories by replying to this post. What are your predictions concerning future mortgagee auctions & Sales? Do you expect the number to increase or decrease? What will the future reveal?

Hi Jeremy,

Getting back to your original message, I think this is a great idea and I hope you are successful.

Regards,
Cadmium

[exnzpat]

The knife catchers will crowd the mortgagee auctions for years, following the market all the way down, until they have no more assets to lose. Then the real investors (smart money) will come back when mortgagee properties are available that yield 4% above the return on a risk free six month NZ government bond, currently 7.5%. That would require a 11.5% rental yield today for property investment to make sense. That means even mortgagee sale properties are still around 100% overpriced.

Bitter Renter,

Don't sweat it. New Zealanders are not yet sophisticated enough to see-through this (new to New Zealand) scam.

Though lately, I’ve become increasingly surprised that they can see at all.

[Monid]

Expat who do you think is running the scam? The mortagee people? Seems a bit far to go to pull the wool over an unsophisticated Kiwi!

Cheers
David

[SwissKiwi]

Davo did you take out any insurance to cover you for potential tennant damage for the period between signing the contract and taking over the property?

[jeremypyle]

Most Property Over Priced

The knife catchers will crowd the mortgagee auctions for years, following the market all the way down, until they have no more assets to lose. Then the real investors (smart money) will come back when mortgagee properties are available that yield 4% above the return on a risk free six month NZ government bond, currently 7.5%. That would require a 11.5% rental yield today for property investment to make sense. That means even mortgagee sale properties are still around 100% overpriced.

At the moment most property is over priced. Even mortgagee auctions sometimes sell for way too much. However, this has not been the trend historically. far lower prices. From the numerous conversations Mortgagee auctions have normally fetched I have had with real estate agents, bank managers and investors, I have become aware that the majority of these people expect the number of mortgagee auctions on the market to rise quite significantly. They also expect the prices fetched from mortgagee auctions to drop as the market levels. It is likely that mortgagee auctions will be hit the hardest during a market correction. Dad purchased the majority of his houses at around $30 to $50 thousand. He purchased some at $20,000 and less. One house he even purchased for $1000. A lot of the houses were purchased at mortgagee auctions

[jeremypyle]

Commercial or Residential?

Bitter Renter, you have to let go of the anger. I reckon things will slow down a bit too and am waiting for it but I don't reckon it'll be as bad as you say.

This is just the way markets work. People see other people making lots of easy money so they jump on the bandwagon too and in a short time you have a way over priced asset and then like reef fish they all turn away suddenly and in terror...

This will happen again and again. Next time, jump on for the ride - just be sure to not get caught up at the end.

David

PS: I think the smart money is chasing bigger fish (seem to be thinking in fishy analogies tonight!). They wouldn't even bother with residential property, doing complicated finance things, possibly big commercial property deals or big business deals. They don't grub around with houses!

Commercial property sometimes can be easier although it has higher risks. When the property goes empty, it can be slower getting tenants. Dad started off with houses, however, he now owns many commercial properties. He used the income of his rental houses as a base for borrowing money for the commercial properties. It is harder to borrow money for commercial property (banks normally do not lend as much towards them)

Dad is in the idea situation to purchase commercial property because of his large income in the housing market. The equity from his residential and commercial property is currently about 3 times the value of all his lending.

Investing in houses is how Dad got wealthy. It is not everybody's cup of tea but it has worked for him.

[essence]

Absolutely agree

Hi Jeremy

I've been watching this thread with interest. Just before Christmas, Harcourts had a property go to auction that was passed in and it's a do-up, vendor is desperate.

I hmm-ed and haa-ed about it overnight and the next day rang the agent. She'd had interest called on the property and did I want to put in an offer, I did. Anyway, long story short, other potential purchaser was advised of my offer and decided to withdraw. I was offered the property $20K above my initial price, I refused to bid against myself until the vendor had counter-offered.

Given that this was the 20th December, I would've expected the vendor to grab at any deal he could get but no he fluffed around and didn't get back to me until after 5pm on 20/12, with an offer substantially higher than my offer.

I refused to go any higher and withdrew my offer. The property has substantial work (external/internal) to be done, but the vendor is still expecting a price comparative to other houses in the area that are in much better condition. Silly vendor.

I'm still interested in the property but the vendor (and vendors in general) have got to start being a whole lot more realistic re pricing.

There is a lot of housing inventory around and some has been sitting for a while. Just wait until the Christmas presents and holidays on the credit card accounts start coming in.

I can't see the Banks being too tolerant for much longer.

[jeremypyle]

Bitter Renter, you have to let go of the anger. I reckon things will slow down a bit too and am waiting for it but I don't reckon it'll be as bad as you say.

This is just the way markets work. People see other people making lots of easy money so they jump on the bandwagon too and in a short time you have a way over priced asset and then like reef fish they all turn away suddenly and in terror...

This will happen again and again. Next time, jump on for the ride - just be sure to not get caught up at the end.

David

PS: I think the smart money is chasing bigger fish (seem to be thinking in fishy analogies tonight!). They wouldn't even bother with residential property, doing complicated finance things, possibly big commercial property deals or big business deals. They don't grub around with houses!

I have bought 2 properties via mortgagee auctions.

The first is my house where I live and where I'm sitting right now. It wasn't advertised as a mortgagee sale at all but turned into one part way through. It was advertised with a price. I signed it up an hour after seeing it (wife hadn't even seen it). Really liked it and just thought it needed a really good cleanup.

To cut a long story short, got a building inspection and there was heaps wrong with it so went back at $60,000 lower. Vendor said no. Turned out mine was the 3rd contract to fall and so mortagees said "Times Up" and put it up for mortgagee sale. I already had all the reports I wanted, finance etc. so made the mortgagee's the same offer I made the vendor. They said no but then rang back the next day and said "Can you settle in 2 weeks?" I said yes.

And then the fun began. I hadn't bought a property via a mortgagee sale before. The agreement they want you to sign is the standard S&P Agreement with all the vendors warranties removed so:

• They don't warrant to have any fixtures or fittings included in the sale. So the owner could theoretically remove all doors, kitchen cabinets, carpets, light fittings, etc. etc.
• They don't give you vacant possession. So you may have to kick out a severely upset owner (their friends, big dogs etc.)
• Normally the vendor warrants that the place will be provided intact as it was when it was seen and signed up by the purchaser. Normally the vendor has it insured up until settlement has taken place then the purchaser insures it. The revised agreement takes out all these warranties so it's at the purchaser's risk from the time it's signed up. I could only get insurance for some things, malicious damage by the tenant was specifically excluded. So theoretically the owner could kick holes in every wall, take a chainsaw to the place or in fact burn the place to the ground and you'd still have to settle.
• You can't object to title, LIM, or have any other conditions like finance or whatever.

So there are very big risks involved here. We were due to settle on a Wednesday and the Sunday night before this at around 10:00 pm when we were just getting to sleep, the owner (turned out to be an alcoholic woman in her 40s) rang us up and made all sorts of comments like "You don't have to worry, you have the place insured etc." This made us worry of course, wondering what the heck she was doing to the place. My wife was in tears. At this point it didn't seem worth it.

It all turned out OK though. On the Wednesday, the woman had left the place, her mother (who was a lovely little old lady who hugged us both) was there to clean up the mess with other family members. I gave them an extra 3 days to clean up because it was chocka with crap. I changed the locks straight away and let them in each day and locked up at the end. They even vaccumed on the last day.

Interesting experience. That was 2 years ago. We've totally done up the place (bit more landscaping to do) and love it here. It was indeed a very good buy and is worth a fair bit more than what we paid plus the fixing-up costs. Having said that, not sure I would do it again. If I did buy another mortgagee property it would have to be very very cheap to make up for the risks and hassles.

David

PS: The second property was some office space in Auckland CBD. Much easier all round, but turned out to be a bit of a dog so sold it on.

Yes there certainly are risks involved. When we purchase, we allow for the extra fix up cost. In the past, it has normally been well and true cheaper to purchase properties that were in rough condition and then renovate. Dad's properties have normally had a cashflow profit even taking into consideration the cost of renovations.