Expert advice from property lawyers on how to reduce risk when buying at a mortgagee sale

This article originally appeared in LawNews and is here with permission.

By Mahvash Ikram*

Superglue poured through the plumbing by an angry property owner; marble benchtops ripped out by unpaid contractors; and occupants who outright refuse to vacate.

These are just some of the hazards facing prospective buyers at mortgagee sales, which are now at their highest level in six years, property lawyer Joanna Pidgeon is warning.

More than 300 properties have gone to mortgagee sale this year and while there may be bargains to be had, the risks for purchasers are high.

That’s because the lender usually does not have possession so cannot give most of the usual warranties, including a standard sale and purchase agreement, Pidgeon told a webinar, hosted by The Law Association, this week.

This makes buying at a mortgagee sale a much riskier proposition than an ordinary purchase. In one of the examples cited above, the mortgagor who poured superglue through the property’s sanitary fixtures was angry because the bank had refused to allow refinancing through a related entity.

“The poor purchaser basically had to replace all of that at great expense,” said Pidgeon, a director at Pidgeon Judd.

In another case, after a developer went into liquidation, unpaid tradies removed the marble benchtops and ripped out other fixtures, she said.

Buyers also have no guarantee of vacant possession. If the mortgagor refused to move out, a purchaser may have to ask the High Court to order vacant possession, costing tens of thousands of dollars.

Her advice to purchasers: insure the property as soon as the hammer falls or the offer is accepted.

Inland Revenue enforcement is part of the reason mortgagee sales are on the rise, says Lane Neave partner Lynne Van. Small business debt is often secured over the family home or investment properties, and when the tax department moves to collect, “the rest of the dominoes start to collapse”.

The situation is no better for lenders who risk costly lawsuits if they botch the formal notices warning borrowers to pay up, or fail to take reasonable care over the price, Van said.

Problems often arise where borrowers or guarantors are based offshore and lenders serve notices in a way that complied with the contract but not the Property Law Act 2007, Van said.

“You can’t contract out of these provisions.”

Even a small slip can stall a sale. In Remarkables Hotel Ltd v Pearlfisher Trustee Ltd [2020] NZHC 3146, notices addressed to the borrower company were sent to its director’s home and emailed to associated entities. The notices gave the company 39 working days to pay. Covid rules at the time required 40 days. The High Court granted an interim injunction stopping the sale.

The question of good faith

In Tapp v Bridging Finance Group Ltd [2025] NZHC 4092, two lenders are facing trial over claims they did not act in good faith when selling a developer’s land to a company run by a director of Bridging Finance Group. The price, $550,000, was just enough to pay off the first mortgage.

The High Court found that while the sale process alone did not breach the lender’s duty over price, the developer’s argument that they had not acted in good faith was worth testing at trial. There was evidence that the land was worth more, including an $800,000 offer the director knew about and a $1.2 million valuation from the developer’s valuer.

However, the lender has challenged the decision, saying that once the court cleared them over the price, it could not then send the good faith claim to trial. They were granted leave to appeal in March, Van said.

Escape clause

Lenders also need to watch the wording of their own sale agreements, which could hand the borrower more time to save the property, Pidgeon said.

In Rahal v ASB Bank Ltd [2026] NZHC 1874, ASB accepted a $3.2 million tender for a property owned by a family trust. The offer came from a company linked to the tenant running a restaurant on the site. But the bank’s agreement allowed it to back out of the sale “for any reason whatsoever” and simply return the deposit.

Guarantor Jivan Rahal went to the High Court to stop the sale. Under s 97 of the Act, a borrower can halt a mortgagee sale by paying off the debt, but only up until the property is sold. ASB argued the property was sold once it signed the sale agreement. But Justice David Johnstone found otherwise. Since the bank had retained the right to pull out, the sale was not locked in until settlement, and Rahal could pay off the debt up to that point.

The judge delayed settlement by three weeks to give Rahal a final chance to clear the debt, after she produced a letter in court with details of a financier’s loan offer. He also  pointed out the clause could push tender prices down, because bidders would factor in the risk of the bank changing its mind.

Open-ended clauses might give a lender options, such as backing out if someone offered more, Pidgeon said. But they also gave the borrower longer to redeem the mortgage, “so you’ve got to consider whether that’s what you want”.

*Mahvash Ikram reports for LawNews. This article originally appeared in LawNews and is here with permission.