On 1 November 2022, the Reserve Bank of Australia determined to increase the cash rate target by 25 basis points to 2.85 per cent. This was largely in response to both domestic and foreign market inflationary pressures, with the September quarter inflation (year-on-year CPI) being 7.3%, the highest in three decades. Commentators anticipate that due to the high inflation, interest rates will continue to rise. If you are struggling to meet your mortgage payments, it is important you are aware of the process and the options available to you.
THE PROCESS
Default Notice
A default notice is the first document a bank will send to those in default on their mortgage repayments. The notice will outline the mortgagor has a period of time (often about 30 days) to make the overdue payments, in addition to continuing to make scheduled payments under the mortgage.
Statement of Claim
If the bank does not receive the payments demanded under the default notice, it can commence court proceedings.
The mortgagor will need to respond to the proceedings by filing a defence. If the mortgagor fails to respond, the bank can proceed to default judgment, which is court recognition that the bank is owed the money to which it claims, and may lead to repossession of the mortgaged property.
Eviction
To repossess the property, the bank will serve a Notice to Vacate or may organise the sheriff's office to take possession of the property. With either option, the sheriff will attend the property, evict any persons and change the locks.
WHAT HELP IS AVAILABLE?
If you receive a default notice, you should seek legal advice immediately to properly understand your position. This should be done before contacting or negotiating with your lender, as your lawyer will advise you on your situation and any action you may take to avoid enforcement action by the bank.
As the negotiation process is entirely circumstantial, it is important you have a clear understanding of your position so you can accurately assess what options are best for your circumstances.
Hardship assistance
Hardship assistance is a negotiation with the bank to vary the terms of the mortgage. The hardship department of your bank will explain the options available and may include the following:
- A temporary reduction in payments, if circumstances appear temporary or likely to improve;
- An extension of your mortgage by three months, adding the overdue payments and interest to the end of the mortgage;
- A temporary stop on your obligations to repay your mortgage until your circumstances improve;
- A transition to interest-only repayments temporarily; or
- An offer to enter into a payment plan.
All the above options are not necessarily provided by each banking institution, and whether they are offered is based upon a multitude of factors. However, if you are granted hardship assistance, it is important that you only agree to terms that you are capable of meeting.
Defending a Statement of Claim, Writ, or Summons
If you receive notice of proceedings being commenced against you, it is important that you seek legal advice immediately. Your solicitor will advise you on filing a Defence or negotiating with the bank on your behalf.
Bankruptcy
It is important to note that repossession of a property does not in itself cause bankruptcy. If you are struggling to meet the requirements of other debts or making your mortgage repayments leaves other bills/debts unpaid, you may be at a high risk of bankruptcy. Early advice from your lawyer or accountant is key to managing your circumstances and potentially avoiding bankruptcy.
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