| How to Invest in Mortgagee in Possession & Distressed Property

If a homeowner stops making mortgage payments, the lender through legal action can take possession of the property.  If the lender is forced to repossess the home, the lender then needs to sell the property without fuss to recoup what is outstanding on the loan.

Distressed property is not always sold by the mortgagee in Possession.   Buyers Agents will often find property developers, administrators, liquidators, receivers and individual property owners under financial stress.  This is well before the lender repossess.  They may have a change in circumstances and are desperate for cash flow and to get a quick sale often prepared to sell at below market value.  

A mortgagee-in-possession or distressed sale often represents an opportunity to purchase at a substantial discount to market value. Note – This is not always the case and if there are a number of investors bidding on the property it may even sell for more than market value.  You must have a clear purchasing strategy and stick to it.   For this reason Buyers Agents will help you formulate a property investment strategy that will set you up for success.

Purchasing a property at below its market value – you are instantly creating equity from day one.  (the difference between the loan amount and the property’s market value).  Please see our separate article about “Home Equity”.

How do You Find Distressed Sales &
Mortgagee in Possession Properties for Sale?
Lenders often don’t advertise mortgagee-in-possession sales, they often go out to the whole sale buyers like Buyers Agents.  Buyers Agents regularly get advance notice of owners in distressed positions before they are public knowledge.  

Lenders are in the Business of Lending Money
– Not Owning Real Estate

For this reason, the lenders’ main focus is simply recouping their losses instead of trying to achieve the highest price like a normal vendor would.  So they are looking to cover the outstanding debt and associated costs.  The property has to be sold. 

Developers, receivers or distressed owners to a certain degree are similar.  They need to cover what is owing on the property and hopefully a bit more.  So instead of putting a lot of effort and time into the sale, they will normally be looking for a quick sale.  Even if that means they don’t get the full value of what the property is worth.

Just because the Owner Needs a Quick Sale or it’s a Mortgagee sale Doesn’t Always Mean it is a Good Investment.

Investment properties still need to perform.   You need to do a lot of research before you jump in just because it “appears” to be cheap.  There are dozens of other factors you must take into consideration. (please see our separate article on this).  One important consideration is if the property needs any work done.  This can add substantially to the costs.  You need to do proper due diligence to see if the numbers stack up.  

If the property is not in an area that will provide you capital growth and good rental yield, the money you save on the purchase will not really mean a lot.  Look at the quality of the investment and the long-term value of the property.

Another potential pitfall with buying this style of property is that you often have less flexibility with conditions and the contract of sale.  There may be no disclosures, no warranties, unpaid rates amongst other issues that need to be investigated .  You need to know exactly what you are getting into and are advised to get professional legal advice.

Disclaimer:  Although all care is taken.  We do not give any warranty whatsoever to the accuracy of any content.
This is not meant to be financial or professional advice and is only of general nature.  You must seek professional advice before taking any actions. The above information comes with no warranties whatsoever.  We take no responsibility for any actions you may or may not take. All content is of general nature only and is NOT to be taken as advice whatsoever

Sally Shields

0414 339 299

Sally Gillman is the owner of Shields Gillman Real Estate.

A Forest resident for almost two decades, Sally enjoys her involvement in the community and has a passion for the area, evidenced by the agencies’ ongoing sponsorship of the Forest Rugby team.

It was this passion that prompted her in 2014 to move her highly successful Eastern Suburbs agency of 20 years to Forestville and bring her considerable property expertise with her.

As a family owned business you can be assured that you’re always dealing with the business owner, you’re treated as a valuable client and receive the personal and professional service that we’re renowned for.