If you have received a statement of claim or summons, or your default notice has expired, lodge an external dispute resolution (EDR) with either the Financial Ombudsman Service or the Credit & Investments Ombudsman. The lender can't continue with any enforcement (such as repossessing your home) while the EDR scheme considers your dispute. You need to lodge in EDR before the lender gets judgment.
The lender must send a default notice
A lender can only start legal proceedings to take possession of your home if:
- you're in default of the mortgage by failing to make a repayment or repayments (or in breach of another condition of the loan); and
- they have sent you a default notice in writing asking for payment of the outstanding amount; and
- you haven't made the requested payment (and your normal scheduled repayment) within 30 days (or the time specified in the notice)
A default notice is a letter required under the credit laws. If your loan is covered by the credit laws (a home loan or investment property loan) then you must be sent a default notice.
A default notice must:
- specify the default (for example, the amount you are behind in repayments)
- specify the action required to fix the default
- give you a minimum of 30 days to fix the default including any scheduled repayment (and specify when it must be fixed)
- that the repossession and sale of the mortgaged property may not repay the entire debt
- include a notice giving information about your right to give a hardship notice (ask for a repayment arrangement on the grounds of financial hardship) and your rights to lodge a complain in external dispute resolution.
- tell you what may happen if the default is not fixed within the time set which includes:
- commence court proceedings
- take possession of the security property
- make the whole debt payable
- list a default on your credit report
If you get a default notice get advice immediately. If you are in financial hardship tell the lender. If you believe you do not owe part or all of the debt get legal advice.
You may receive a letter of demand both before and after the default notice. A letter of demand is a letter from the creditor demanding repayment of the debt and notifying you that they may sue you in court. Letters of demand are not court documents.
When the lender starts court proceedings
You will be served with a statement of claim or summons from a court. You will be given a limited time in which you need to respond. You should consider lodging in external dispute resolution immediately as soon as you receive the statement of claim or summons. This will stop the lender getting judgment while you are in external dispute resolution. Call us immediately to discuss your options.
In most circumstances, the lender will seek a court judgment for:
- possession of your home and/or
- payment of the amount outstanding
The lender may take possession without going through the court (but this usually only happens when the property is vacant).
Repossession and selling your property
If the lender obtains a court judgment the next step is for the lender to seek an order to take possession of your home. You will be given notice and a sheriff will come to your home and change the locks.
Your lender will then sell your home by either auction or private sale.
In selling your home, the lender must:
- exercise the power of sale in good faith, having regard to the interests of both parties
- take reasonable steps to obtain the best possible price consistent with its right to realise the security
- tell you when your home has sold and let you know how the sale have been used
- give you any money that is left over (if there is any) after the loans have been repaid
- can charge legal and sale costs for the legal action and sale of your home. These costs will be added to the loan.
- does not have to keep you informed about the progress of the sale of your home
- can set a low reserve in an auction (as a low reserve does not mean the property will be sold for that amount)
- does not have to spend money to improve your home for sale (but they may need to pay for maintenance costs)
- does not have to maintain the existing tenants or find new tenants
- can insure your home and charge you for that insurance
- can use the money from the sale of the property to reduce other loans you have with the same lender
If you believe the lender has acted unfairly in selling your home you can complain to the lender. If that dispute is not resolved you can complain to external dispute resolution. For more information see FOS Approach to Mortgagee Sales.