In the current unstable economic climate, an increasing number of homeowners are struggling to meet their home loan repayments, with many finding themselves in mortgage default. If you are facing the threat of foreclosure and have been served with a notice to pay, seeing a lawyer might seem daunting, because of the fear of falling deeper into debt with legal fees. However, depending on your circumstances, and particularly if your financial hardship is temporary, seeking legal advice at the earliest possible time could help you realize a greater equity in your property and minimize your debt burden or even allow you to keep your home.
This article aims to provide an outline of the various options that may be available to you.
Changing the terms of your mortgage
Any person who is experiencing financial hardship has the right to apply to their mortgagee to change the terms of their mortgage under the Code of Banking Practice or the Mutual Banking Code of Practice. Most lenders are signatories to the Codes and are therefore bound by the obligations prescribed.
You might also be eligible to vary the terms of your mortgage under the hardship provisions of the National Consumer Credit Protection Act 2009 (“the new Code”) (see below).
The three-tier system of dispute resolution
The new Code has introduced a three-tier system of resolving disputes with mortgagees.
The three tiers are:
- Internal review;
- External dispute resolution (“EDR”);
- Using the hardship provisions of the new Code to vary the terms of your mortgage contract.
If you are eligible, then under the new Code you may be able to apply to your mortgagee for changes in the mortgage. Such changes may include reducing the amount of repayments by extending the loan or postponing the due dates for payment.
If the mortgagee continues to refuse varying the terms of the mortgage, then they must provide reasons, provide the name of the EDR scheme that they belong to, and advise you of your rights. You may then apply to the Magistrates’ Court or Federal Magistrates’ Court to change the terms of the contract. Any changes that the courts choose to make will be binding on the mortgagee.
Mortgage relief scheme
The mortgage relief scheme is a government initiative that could help you keep your home. Depending on your circumstances, you may be eligible for a short-term interest free loan to assist you in meeting your mortgage repayments resulting from an “unavoidable” change in your income or circumstances such as unemployment or illness.
Achieving the highest possible sale price to meet debts
In situations where the sale of the property to meet the debt is unavoidable, you may be able to negotiate with the mortgagee to attempt to sell the property yourself. Although theoretically mortgagees are obligated to consider the interests of the homeowner if they sell as mortgagee in possession, in practice, homeowners are often able to achieve more favourable outcomes at auction. Furthermore, costs of sale by a homeowner are often less than what a mortgagee’s sale would cost which further erodes any equity you may have in your home.
Other solutions
If you have fallen into financial difficulty due to loss of income caused by a work injury, you should consider the possibility of making a workers compensation claim.
This article is intended to provide general information only and is not a substitute for legal advice. To obtain legal advice tailored to your situation please contact RKL on (03) 9519 9888.
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