What is repossession?

If you decide to buy a home you will probably need to borrow money from a lender. The lender will take a mortgage over the house you are buying to secure the home loan. The lender takes your home as security so that it can be taken from you and sold (this is called repossession) if you do not pay the home loan in accordance with your contract with the lender.

When can the lender repossess my home?

The lender can only take possession of your home if:

• There is a mortgage over your home

AND

• You have "defaulted" on the loan agreement (for example, failed to make repayments, failed to keep your home (building) insured etc.)

AND

• You have been sent a section 57(2)(b) of the Real Property Act (NSW) notice. This notice gives you 30 days to fix the default otherwise the lender can proceed with court action to take possession of and sell your home. This notice can be sent by ordinary post.

AND, in most cases

• You have been given a notice by the lender under the Consumer Credit Code that you are in default of the loan, and that you have 30 days from the date of the notice to fix the problem and you did not fix the problem within that time. This notice will include an acceleration clause. This means that if the arrears are still outstanding after the 30 days has lapsed, the entire loan becomes payable. This notice can be sent by ordinary post.

AND

• You do not have a defence or you do not file a defence.

The above notices may be sent separately, together, or may be included in the same document that mentions both the Real Property Act and the Consumer Credit Code. It is also important to note that the lender does not have to present the Consumer Credit Code notice to the Supreme Court to get an order forcing you to leave your home. If you receive any papers from the Court about repossessing your home and you have not received either of these notices, you should get urgent legal advice.

What can I do?

The following sections discuss your options:

1. Before you have received a default notice (but you are having trouble paying your loan)

What can I do when I skip my first repayment?

The most important thing is to immediately get legal advice as soon as you are going to miss a repayment or you have not made a repayment. The sooner you act the better chance you have of sorting a repayment arrangement out to either catch up or make reduced repayments while you are experiencing temporary difficulties.

Warning: Do not think that it will be OK that you have missed a repayment. Unless you are sure you can make up the missed repayment within 4 weeks and keep making the required repayments as well you must get legal advice and take action to get a repayment arrangement in place.

It was the case in the past that lenders would take many months to begin court proceedings against you if you miss a repayment(s). This is no longer the case. Lenders work to a timetable to begin court proceedings and this can be very difficult to stop once this process has started.

So when you get behind in your repayments, you need to:

a) Work out why you are getting behind. Is the change that is causing financial hardship for you temporary or permanent?

Example 1:

You are permanently injured due to a work injury. You have received compensation but that is all you will get. The compensation made a small dent in your mortgage. You now cannot afford the repayments on your loan. You do not have enough superannuation to help. You may need to consider selling your home and arranging time to do this with your lender.

Example 2:

You have lost your job. You are looking for work while receiving Centrelink benefits. You hope to get a job soon. You need to get a repayment arrangement in place with the lender to reduce your repayments while you are seeking work. You may also fit the criteria for a hardship variation under the Consumer Credit Code. See Fact Sheet: Hardship Variations on Consumer Loans . Even if you are not covered by the hardship variation provisions of the Consumer Credit Code, your lender may have obligations to work with you to overcome your financial difficulties (for example, by reaching a repayment arrangement) as a result of an Industry Code of Practice such as the Code of Banking Practice or the Mortgage Finance Association of Australia Code of Practice.

Be as realistic as you can about your circumstances. If you are never going to be able to afford the repayments in the future you need to face up to it and look at selling your home. The longer you wait the more likely it will be that the lender sells your home and almost definitely will not get as good a price as you would have if you had sold your home. If you are not meeting your repayments your loan balance will grow very fast as a result of interest and default charges, reducing the amount of money you might get from the sale of your home once the loan has been repaid.

If you realistically believe you can repay your loan if your payments are reduced temporarily then you must get a written repayment arrangement in place you can afford until your financial circumstances improve.

b) If you want to negotiate a reduced repayment arrangement you must keep making payments (as much as you can afford) to your loan.

Whatever your temporary financial difficulty is, if you want to make a repayment arrangement, you must keep making repayments (of whatever you can afford) to your loan. Do not stop making payments of some amount!

If you are going to convince the lender to agree to a reduced repayment arrangement you must show you are serious by continuing to make payments of as much as you can afford.

c) Ring the lender and explain your situation

This should be done as soon as you have obtained legal advice or, if you are not getting legal advice, straightaway.

Don't be scared. Lenders make repayment arrangements all the time. Be as clear as you can about why you are in financial hardship.

Example 3:

You have had to leave work due to illness (severe depression). You are taking medication and hope to get better in a few months with treatment. When you ring the lender you should say: I am in financial hardship. I have had to leave work due to illness and in particular, severe depression. I am seeking treatment. I wish to seek a change in repayments on the grounds of hardship. I can send you a medical certificate. Can I have the address where I can send my medical certificate. I hope to be back to work in 6 months. I can afford to pay $(insert amount) per month to my loan.

Then, you make a note of that phone conversation and send a letter to the lender confirming what you said. Keep a copy. If you can apply for a hardship variation use the hardship variation sample letter.

d) If the lender says no to your proposed repayment arrangement you have to persist.

Keep making the repayments even if the lender tells you it is not enough.

Next - Find out if your lender is in an external dispute resolution scheme (such as the Banking and Financial Services Ombudsman). You can do this by ringing 1300 780 808. If your lender is in an external dispute resolution scheme you can ask the scheme to review your request (see Fact Sheet: Have a dispute you can't resolve with your credit provider? ). It is important to make a complaint before any legal proceedings are commenced as the scheme will not be able to consider your complaint after legal proceedings have commenced. Once you have made a complaint, the lender cannot take any legal action against you until your dispute has been considered by the scheme.

If you qualify to apply for a hardship variation under the Consumer Credit Code (see Fact Sheet: Hardship variations on consumer loans ) you can apply to the Commercial Division of Consumer Trader & Tenancy Tribunal for an order to make the lender agree to a repayment arrangement. You will need to seriously consider doing this if you are not getting agreement from the lender to a reduced repayment arrangement, particularly if your lender is not in an external dispute resolution scheme. The order will only be granted if the Tribunal considers that your request is reasonable in the circumstances and that you will still repay your loan within a reasonable time.

e) Try to get money to catch up arrears from other sources.

Other avenues you can try are:

1) Mortgage Assistance Scheme Ph: 1800 806 653

2) If you have a relevant insurance policy make a claim under that insurance policy

3) Investigate the early release of any superannuation you have. You should contact your Superannuation fund and APRA (www.apra.gov.au). Do not do this unless your problems are temporary. If you use up what is available from your superannuation and are still unable to meet your repayments, you may find you lose your house anyway, and you also have less superannuation when you retire.

Important: Do not stop making payments and trying to get a repayment arrangement. You always need to pursue a number of options.

2. After you have received a default notice;

When you receive a default notice(s) from the lender you need to take immediate action. When you receive a default notice you will receive:

1) Section 57(2)(b) under the Real Property Act (NSW); and a

2) Notice under section 80 of the Consumer Credit Code (if your loan is a home loan rather than an investment or business loan).

The notices have to be sent to you by the lender if they want to take possession of your home in the future and sell it.

The notices give you 30 days to pay any outstanding arrears and any payment that falls due within the 30-day notice period.

If you do not pay the arrears and your repayment due during the 30-day notice period:

- the whole loan becomes due and payable after the 30 days ends; and

- the lender can take action to sell your home

If at all possible pay the outstanding arrears and your normal payment before the 30 days expires! If you do that both notices are satisfied and you are no longer in default.

If you can't manage to do pay the arrears and your normal repayment then if you are going to:

1) Get a repayment arrangement in place; or

2)  Apply to an External Dispute Resolution Scheme (only available if your lender is a member of a scheme; or

3) Apply to the Commercial Division of the Consumer Trader & Tenancy Tribunal for a Hardship Variation or Postponement of Enforcement (only available if your situation fits the criteria under the Consumer Credit Code);

then you should do so before the 30 days expires.

3. After you have received a Statement of Claim

What can I do when I receive a Statement of Claim for Possession?

You need to get legal advice immediately!

A Statement of Claim for Possession is a document that must be filed in the Supreme Court and served on you (sent to you by post or given to you in person) before the lender can get a court order to take possession of your home. The Statement of Claim is usually also served with a Notice to Occupier. The Notice to Occupier is for tenants. If you are the owner of the home you can ignore this notice. You have 28 days from the date you were served to file a form called a Defence and a Notice of Appearance. This is a very short time so act quickly. YOU NEED TO GET URGENT LEGAL ADVICE. See GETTING HELP below.

Important:

Even if you have no obvious defence to the debt (for example, you just did not pay because of financial problems) you may have a technical defence. A technical defence may arise when the lender has not met the legal requirements to commence repossession of your home.

You may be able to file a defence and cross claim for a hardship variation under the Consumer Credit Code if you fit the relevant criteria (see Fact Sheet: Hardship variations on consumer loans ). You must seek legal advice urgently to do this as you only have 28 days from the date you are served with the Statement of Claim to file the defence and cross claim. 

If you do not file a Notice of Appearance and a Defence, then the lender can obtain:

Judgment for Possession and leave to issue a Writ of Possession. This means that the Supreme Court has granted the lender the power to repossess and sell your property.

A Judgment for the amount claimed by the lender. This means that you owe the lender the amount claimed including interest, fees and repossession costs. If the lender sells your house and the amount received from the buyer does not cover the amount outstanding on your loan, you will still owe money to the lender. The money you still owe will be the difference between the amount outstanding on your loan and the money recovered from the sale (less the lenders costs for arranging the sale). Interest and fees will continue to be charged on any amount outstanding.

4. After your lender has obtained judgment against you

What if the lender has obtained judgment but I think I may have a defence?

If you think you have a defence and you had a good reason why you did not file a defence before the lender obtained judgment then you need to seek legal advice. See GETTING HELP.

What happens after judgment?

The Sheriff (an officer who enforces court orders) serves a Notice to Vacate and you will need to move out. You may be able to apply for an extension of time in which to move out of your house or stay all action depending on your circumstances. YOU MUST GET URGENT LEGAL ADVICE. See GETTING HELP below.

If you are unable to get to see a solicitor in time, you may be able to seek a stay of all action (including enforcement of judgment) by seeing a Duty Registrar (an officer of the court) at the Supreme Court. Ring the Supreme Court and ask about what you need to do to see the Duty Registrar. See GETTING HELP below for details.

You will need to complete a Notice of Motion and an Affidavit in Support setting out your reasons for requesting a stay. These forms are available from the Supreme Court. Reasons could include that you are in the process of selling the house (show evidence of the appointment of a real estate agent or a contract of sale), or refinancing (show evidence of your loan application), or you are suffering severe hardship (bring along medical evidence, for example).

You will not be given a stay for an indefinite period. The Duty Registrar will grant a stay of 14 days at the most. Your case will be listed in the court at the end of that period to determine whether you will be granted a further stay and, if so, for how long. You should take along all your evidence (such as relevant documents) for the court to consider.

5. Beware of refinancing to save your home when you are already in default

If you are in financial difficulty you will often be forced to go to a lender of "almost last resort" or "last resort". There are lenders who specialise in desperate borrowers. Those lenders often advertise with slogans like: " bad credit-no problem", and "sheriff at the door". You can tell if you are at a lender of last resort because:

· The loan term will usually be 12 months (definitely less than 5 years)

· The mortgage broker will charge you a (large) fee

· You will have to borrow a lot more to cover all the fees

· You will be told you have to sign a declaration that loan is for business/investment purpose even if it is not

· They will find a solicitor for you that you have to pay

Because your loan will increase significantly on refinance you will probably have difficulty making repayments. This may lead to you losing your home anyway (with a lot less equity left in your home)!

So what can you do? Firstly, get advice, the earlier the better! It may be possible to follow the steps above to negotiate with your existing lender. Even if your situation is hopeless it may be better for your home to be sold than to refinance and increase your loan considerably just to live in it another year.

Getting help

The Chamber Magistrate at your nearest local court can provide information about the court process and help fill out court forms. They cannot give legal advice.

Credit and Debt Hotline: financial counselling and legal advice for people who are experiencing difficulty with consumer loans. 1800 808 488

Law Access: 1800 806 913

Mortgage assistance may be available for people experiencing temporary difficulty paying a home loan: 1800 806 653 or 9821 6502

Other information:

Fair Trading Centres: 13 32 20; www.fairtrading.nsw.gov.au  

Interpreters: 13 14 50