Behind the Bargain: The hidden costs of buying a property through a mortgagee sale

A recent High Court case in Pāpāmoa Beach has drawn attention to the legal and emotional challenges of mortgagee sales in New Zealand.

After purchasing a home through this process, the new owners found themselves in court when the former occupant refused to leave, claiming she hadn’t agreed to the sale and had been negotiating with the bank.

Mortgagee sales occur when a borrower defaults on their loan and the lender exercises its legal right to sell the property to recover the debt. Unlike a standard sale, the lender, not the homeowner, controls the process. The property is sold as-is, with no guarantees about its condition or whether it will be vacant at settlement.

In this case, the court ruled in favour of the purchasers, confirming that the bank had acted within its rights. The former owner would have signed loan documents outlining the consequences of default, including the possibility of a forced sale. While banks often try to work with borrowers in financial distress, they are not required to be endlessly accommodating. If repayments aren’t made and no resolution is reached, the lender can, and often must, act to protect its financial position

For buyers, this case is a reminder that mortgagee sales carry real risks. Possession is not always straightforward, and legal hurdles can arise if the property is still occupied. There are no warranties about the property’s condition, and delays in access can trigger insurance issues.

Although legal professionals typically advise clients of these risks, buyers must take responsibility for understanding them. Engaging a lawyer early, checking occupancy status, and preparing for potential legal costs are essential steps.

Mortgagee sales are increasing, with recent data showing a noticeable rise. While still relatively low, the trend reflects growing financial pressure. Banks continue to treat mortgagee sales as a last resort.

If you're considering buying through a mortgagee sale, speak with us first. We’ll help you understand the risks and protect your interests. A discounted price can come with hidden costs— so make sure you’re fully informed before you commit.