The existing loopholes in the current policies and practices on mortgagee sales are the root cause of many consumers losing their homes.
An imbalance of power is the first thing that staggers the homeowner and their confidence to seek justice. The following are some of the loopholes associated with mortgagee sales:
* No pre-contractual disclosure — Banks and financial providers fail to give out information that can be easily compared prior to taking loans. The intended borrower is given the contract document to read and sign.
The potential borrower is not provided with all the necessary information in a simple format to shop around for the best home loan. In Australia, home loan fact sheets provide a standardised layout of information for a loan.
* Financial hardship: A consumer who enters into a home loan contract at a particular annual interest rate has no clue what the future has in store for him/her. Any change in their earning ability, interest rate and in real estate prices make homeowners very vulnerable.
These are the inherent features of taking home loan which borrowers cannot foresee. The lenders should recognise this and respond to such changes in good faith.
The application of the financial hardship clause in the law must be applied consistently by lenders to assist borrowers experiencing difficulties in meeting the repayments on their mortgage.
Most borrowers receive very little information that some relief should be provided by lenders when borrowers face financial hardship.
* Default notice — a notice sent to borrowers when they miss a payment. They however should be improved with better and clearer information on options available for credit restructuring.
Borrowers would benefit from being provided with information on their rights to request relief or assistance on the grounds of financial hardship and the options available to them under the Consumer Credit Act.
* Mortgagee sale — In Fiji, financial institutions and their lawyers initiate mortgagee sale where a consumer has no say. Whereas in Australia, a court or tribunal order must be sought by the lender before the house is put on auction or mortgagee sale.
In other words, the court independently assesses to which extent financial institutions assisted the home-owner during hardship.
In the court or tribunal the lender has to convince with facts and evidence that all opportunities were given to the mortgagor and foreclosure is the last resort.
In Fiji, the current law expects the borrower to go to the court to seek relief (if denied by the banks) for changes to credit contract under hardship, to postpone mortgagee sale or re-open any unjust transaction.
* Conflict of interest of lawyers — In mortgagee sales, lawyers are appointed by the bank but paid by the borrower.
If a lawyer is engaged by the financial institution then the payment should be made by them. The settlement also takes much longer because the lawyers protect the interests of the financial institutions to remain on their panel of solicitors. Longer period means more legal fees for the lawyers and more interest earnings for the banks.
* Tender process — The tender process called for mortgagee sale is not transparent. A home owner is not invited or involved when tenders are opened and awarded.
* Mortgaged property often get sold well below market value — It is hard to believe that things get overboard when it comes to mortgagee sale. One has to look at the price fetched by a property put on mortgagee sale as compared to other properties sold around the same time.
Why is the interest of the homeowner always disregarded? In most cases properties are sold much below the market value. It is important that the property be sold through normal sale or through auction. This will ensure that the property is sold at or above market value.