Mortgagee Sales: What Buyers Need to Know Before You Bid

There may be some bargain properties up for grabs at mortgagee sales, but buyers need to be careful. A mortgagee sale can present an opportunity to purchase a property at an attractive price, but it also comes with risks that you would not normally encounter when buying a property from the owner.

A mortgagee sale occurs when a property owner has defaulted on their mortgage and the mortgagee, usually a bank or other lender, exercises its power of sale to recover the money owed. The mortgagee is selling the property to recover its debt, rather than selling it as the owner would in an ordinary residential property transaction.

This difference is important because the mortgagee may not be in a position to give you the same information, warranties or protections that you would normally expect from a vendor.

Mortgagee auctions are unconditional

Buying at auction is different from negotiating a standard Sale and Purchase Agreement. An auction is generally unconditional, which means that if you are the successful bidder, you are committed to completing the purchase. You therefore need to do your homework before you bid. This includes arranging your finance and, where possible, obtaining and reviewing the title, LIM, building inspection and any other reports you need.

You should also have your lawyer review the auction agreement and any special mortgagee-sale conditions before the auction. There is no universal Sale and Purchase Agreement, and mortgagee agreements can contain conditions that differ significantly from a standard residential agreement.

The important point is simple: you don't get to win the auction and then decide whether you are happy with the property.

Why are mortgagee sales different?

A standard residential sale generally comes with a range of obligations and warranties from the vendor. A mortgagee sale can be very different. The mortgagee may have limited knowledge of the property's history and may not be prepared to give the usual vendor warranties. The special conditions in the mortgagee agreement can also place additional risks on the purchaser.

Some of the issues we recommend buyers consider are:

1. You may not get vacant possession

In an ordinary residential sale, the agreement will generally specify whether the property is to be provided with vacant possession or subject to an existing tenancy.

With a mortgagee sale, however, the mortgagee does not necessarily guarantee that the property will be vacant on settlement. The previous owner or another occupier may still be living at the property.

If the property is not vacant when you become the owner, you may have to take steps to obtain possession. This can involve additional time, cost and legal complications.

Do not assume that buying the property means you will automatically receive an empty house on settlement. Find out who is occupying the property and exactly what the mortgagee-sale agreement says about possession before you bid.

2. The property could be damaged before settlement

One of the risks of a mortgagee sale is that the property may be damaged between the auction and settlement. The mortgagee's obligations regarding the condition of the property may be significantly different from those of an ordinary vendor. There have been situations where a disgruntled former owner has damaged a property or removed items before leaving.

This is one reason why insurance is particularly important. You should speak to your insurer before bidding and establish whether the property can be insured from the relevant date and what cover is available. Depending on the terms of the mortgagee sale, you may be required to arrange insurance before settlement because the mortgagee may no longer be responsible for the property once the agreement is signed. Do not leave this until after the auction.

3. Chattels may not be included

In a standard residential sale, the Sale and Purchase Agreement specifies which chattels are included with the property. With a mortgagee sale, you cannot assume that the usual chattels will remain. The mortgagee may not offer the property for sale with items such as the stove, curtains, dishwasher, heat pump or other chattels, and the agreement may specifically exclude them. This can come as a surprise to buyers who have viewed photographs showing a fully equipped kitchen or other items throughout the property. Check the chattels provisions in the mortgagee-sale agreement carefully before you bid. If something is important to you, don't assume it will remain simply because it is visible in the property's advertising.

4. You may not be able to properly inspect the property

Sometimes a mortgagee sale property is occupied and prospective purchasers cannot obtain the same level of access that they would normally expect.

You may have limited opportunity to inspect the inside of the property, arrange a building inspection or investigate alterations and maintenance issues.

This means you could be bidding without knowing the full condition of the property.

If you cannot obtain a building inspection, you need to understand that you are taking on significantly more risk. A property that appears to be a bargain may require substantial work once you have access to it.

Settled.govt.nz specifically recommends buyers carry out as much due diligence as possible and have their lawyer review the documents before purchasing a mortgagee-sale property.

5. There may be no usual vendor warranties

One of the biggest differences between an ordinary property sale and a mortgagee sale is the warranties provided by the vendor. The standard warranties and undertakings found in an ordinary Sale and Purchase Agreement may be excluded or modified in a mortgagee sale agreement. For example, you should not assume that the mortgagee will warrant that alterations to the property were properly consented or that a Code Compliance Certificate exists. The mortgagee may simply not have the information that an owner would normally provide.

This is particularly important if the property has:

• extensions or alterations
• converted garages or other spaces
• decks or other structures
• unconsented building work
• unusual plumbing or electrical work
• changes that may require council approval.

You need to investigate these matters before bidding wherever possible.

6. The property may be sold on very different terms

A mortgagee-sale agreement is not simply a normal Sale and Purchase Agreement with the word “mortgagee” added to it. The special conditions can significantly change the risks for the purchaser.

This is why we strongly recommend having your lawyer review the actual mortgagee-sale agreement, title and available property information before you bid. Your lawyer can identify the risks that apply to that particular property and explain what you are agreeing to if you become the successful bidder.

7. The sale may not proceed as expected

A mortgagee sale is ultimately being undertaken to recover money owed to the lender. There can be circumstances in which the mortgagee sale does not proceed as expected.

For example, the owner may resolve the mortgage default before the sale is completed. Settled.govt.nz notes that a mortgagee sale can be stopped if the owner repays the mortgage before settlement.

This is another reason not to make arrangements or incur significant costs on the assumption that the purchase will proceed until you have taken proper legal advice.

Is a mortgagee sale worth the risk?

It can be.

A mortgagee sale is not automatically a bad purchase, and there are circumstances where buyers can secure a property at a good price. The key is to understand why the property is being sold cheaply and what risks you are taking on in exchange for that price.

A lower purchase price may not be a bargain if you subsequently discover that:

• you cannot obtain insurance;
• the property requires significant repairs;
• there are unconsented alterations;
• you cannot obtain vacant possession;
• important chattels have been removed;
• you cannot obtain the usual vendor warranties; or
• you have limited ability to investigate the property before committing to buy.

Our advice to mortgagee-sale buyers

If you are considering bidding at a mortgagee auction, talk to your lawyer before you bid, not after you win.

Before auction day, we recommend that you:

1. Have the mortgagee-sale agreement reviewed by your lawyer.
2. Check the Record of Title and any registered interests.
3. Obtain a LIM and other council information where available.
4. Arrange a building inspection if access is available.
5. Confirm your finance before bidding.
6. Speak to your insurer about whether the property can be insured and from what date.
7. Find out whether the property is occupied and what the agreement says about possession.
8. Check exactly which chattels are included.
9. Investigate any obvious alterations, additions or other potential building issues.
10. Understand every special condition in the mortgagee-sale agreement before you commit to the purchase.

Mortgagee sales can offer opportunities, but they are not ordinary property purchases

The prospect of buying a property below market value can be tempting, particularly when you see a property advertised as a mortgagee sale. But don't let the auction atmosphere or the prospect of a bargain persuade you to bid before you understand what you are buying.

Do your due diligence first. Get the agreement reviewed. Understand the risks. Then decide whether the property is still a bargain.

Contact our team of lawyers before you bid at a mortgagee auction.



Originally published in 2019 and reviewed and updated on 7 September 2026 by Sirpa Gunn.