Lenders must now show that they took reasonable care in exercising their rights as mortgagee or chargee to sell property for not less than its market value or for the best price that can reasonably be obtained in the absence of a market. Their agents are under the same duty.
This new obligation was introduced on 1 November, 2011 into the Conveyancing Act 1919 (NSW) in section 111A. It applies to all mortgagee sales in relation to property owned by natural persons even if the mortgage was created before that date.
This new duty mirrors the duty owed in relation to corporate borrowings by virtue of section 420A of the Corporations Act. A lender’s best practice for corporate borrowings now applies to individuals.
Best practice dictates the following:
- a professional valuation from a qualified valuer with expertise in the relevant market be obtained;
- advertisements to market the property to the largest possible group of potential purchasers be done;
- the property marketed for a reasonable period of time;
- the most appropriate method of sale used (eg. auction).
Breach of the new duty sounds in damages only. A purchaser’s title is unaffected.