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Mortgage stress

Fact sheet

Are you falling behind on your home loan payments? Or worried about interest rate rises?   Are you in hardship because you’ve lost work or gotten sick?  Are you worried about the bank trying to repossess your home? Have you gotten any default letters or court documents (eg. Notice to Occupier, or Statement of Claim)?

This factsheet explains a bit about how repossession can happen, and what steps you can do about it.

This fact sheet is for information only, you should call us to talk to a lawyer if you need legal advice about your situation.

CASE STUDY

Jacob & Emma have three young children and have a home loan with BIG BANK.

Jacob lost his job and although Emma worked part-time they could not afford to make their mortgage repayments.

A few weeks after Jacob & Emma had missed their second payment they received a letter from BIG BANK demanding they pay the missed payments of $2400 in 30 days – on top of their normal payment due over that 30 days  – or the BIG BANK may go to court.

There was no way they could come up with that amount. They decided to pay $200 and hope that they could catch up soon. Two months later they were handed a Statement of Claim from the court seeking repossession of their home. Worse still, they only have 28 days to respond!

WHAT IS REPOSSESSION?

When you borrow money to buy a home, the lender takes a mortgage over the house as “security” – this means the home can be taken from you and sold (this is called repossession) if you do not keep to your home loan contract with the lender. If the lender is threatening repossession get legal advice immediately.

The good news is that you do have options, and usually the earlier you get advice, the more options you have. 

WHEN CAN THE LENDER REPOSSESS MY HOME?

IMPORTANT: This factsheet only applies to home mortgages and residential investment loans that fall under the National Consumer Credit Protection Act 2009.  The good news is that most home mortgages and residential investment property would fall into that category. The most common exception would be business-related loans.  Get legal advice if you’re not sure

First, you need to “default” on the mortgage (the most common defaults are missing repayments or not insuring the building).

Second, the lender must send you a “default notice” that says:

  • You have 30 days to fix the default (for example, pay the arrears or insure the home) and
  • You must keep up to date with any other payments that become due during that 30 days.

This is usually a combined notice required under s88 Schedule 1 of the National Consumer Credit Protection Act (2009) and section 57(2)(b) of the Real Property Act (NSW).

Third – if the 30 days in the default notice has expired, and you are still in default, the entire loan then becomes owing (not just the missed repayments) and the lender can start the repossession process:

  1. IF YOUR HOME IS VACANT: the lender can take possession straight away, by going onto the property and changing the locks. They can then sell the property.  Get urgent legal advice.
  2. IF YOUR HOME IS NOT VACANT: the lender has to go to court and send you a ‘Statement of Claim’ asking for possession (there may also be ‘Notice to Occupier’ on top of the Statement of Claim, which is in case the property is rented out to tenants)

You have 28 days to respond.  If you do not respond, the court can give the lender an order for possession, and a judgment for the whole loan balance (with legal and court costs added on).

The lender can then get the sheriff to send you a ‘Notice to Vacate’.  This will have a date and time where the sheriff will come to change the locks to your home, and hand the keys over to the lender.

WHAT CAN I DO?

It depends on where you are in the process:

  1. You are not behind yet, but you are worried
  2. You’re behind in repayments or about to fall behind , but there’s no default notice
  3. You have received a default notice, but no court documents
  4. You have received a Statement of Claim.
  5. The lender has a court judgment

IMPORTANT: If you don’t know what letters you’ve gotten, ring your lender and ask if a 30 day default notice has been issued, or if they have gone to court

1. YOU ARE NOT BEHIND, BUT YOU ARE WORRIED

If you can keep going with your normal repayments for now, but worried about what might happen if grocery costs or interest rates go up, you should book an appointment with a free financial counsellor to talk through your options. They can help you prepare a money plan to see where your money is going, and give advice on your options.

All financial counsellors are free and independent, and you can find your local service here: https://moneysmart.gov.au/managing-debt/financial-counselling

2. YOU ARE BEHIND IN PAYMENTS (OR ABOUT TO FALL BEHIND) – NO DEFAULT NOTICE

The sooner you act the better chance you have of sorting a repayment arrangement out to either catch up or make reduced repayments while you are experiencing financial hardship.

Mortgages can be up to 30 years long, and most people will fall behind at some point, because they’ve been out of work, or been sick or needed to care for someone else, or had something else happen which is outside their control. 

Lenders legally have to help you if you are in temporary hardship (usually 3-6 months or more rarely up to 12 months).  If you’re worried you can’t afford the mortgage long-term or your hardship is dragging on and your lender is getting impatient, see the section below on ‘Do I need to sell my home’.

STEPS TO GETTING A HARDSHIP ARRANGEMENT

Contact your lender, explain why you are in hardship and ask for an arrangement that you can afford.  Have a plan for when you can go back to normal repayments.  Examples:

  • I’m in hardship. I’m a builder and I lost my job when the company folded.  I’m on Centrelink payments while I look for a new job and I can’t afford my mortgage until that happens.  Can you pause my payments for 6 months? Once I get a new job, I want the missed repayments added onto the end of the loan, so I can go back to normal repayments without worrying about catching up on the missed repayments. 
  • I’m in hardship. I need surgery and will be off work for 3 months while I recover.  My partner is still working, and between us we will only be able to afford $300 per week into the mortgage for those 3 months. Can you reduce my payments to $300 per week, and after 3 months, we can afford to pay an extra $50 per week on top of our normal repayments to catch up on the missed repayments.
  • I’m in hardship. I’ve had a work injury and it’s permanent.  I have gotten some compensation but it’s not enough to pay the mortgage down enough so I can afford the repayments.  I can’t go back to work, I don’t have enough superannuation to help.  I won’t ever be able to go back to normal repayments and I want a 6 month pause on payments so I can sell the home and pay out the loan.

TIPS:

  • Don’t agree to payments you cannot afford or are not sure about. A broken arrangement can make it harder next time to get another payment plan. See a financial counsellor to work out what you can afford, and ask the lender to put the account on hold until after your financial counselling appointment
  • Don’t be scared. Lenders make repayment arrangements all the time. Be as clear as you can about why you are in financial hardship. Keep a record of when you called, who you spoke to and what was agreed.  If you prefer to do it in writing, we have a Sample Letter here: Request for Hardship Variation.
  • If you ask for 6 months, but the lender will only agree to 3 months, you could consider asking for a review at the end of the 3 months to see if you need more time
  • Once you have an arrangement, ask the lender to send you the details in writing so you have a record. Keep track of when you need to start making payments again or talk to the lender again
  • Your home loan is high priority and usually needs to be paid first. Get advice if you are being threatened with bankruptcy.
  • Keep making repayments (of whatever you can afford) while negotiating – even if the lender says it’s not enough

  • The lender has to respond in 21 days
WHAT IF THE LENDER DOESN’T AGREE? OR I DON’T HEAR BACK FROM THEM?

Go to the lender’s complaints department and ask them to reconsider.  Find your lender’s complaints department here: https://afca.org.au/make-a-complaint/findafinancialfirm

If that doesn’t work, lodge a complaint with the Australian Financial Complaints Authority (AFCA). You can do this online at www.afca.org.au or by ringing 1800 931 678.  You will get a complaint number.

Once your complaint is with AFCA, the lender cannot take any legal action against you while AFCA looks into it. 

You can keep negotiating with the lender but if not successful, AFCA can make a lender agree to a hardship arrangement if AFCA believes it is fair – so you need to show why your request is reasonable and you can realistically afford future payments. You can read more about how AFCA deals with hardship complaints here: https://www.afca.org.au/make-a-complaint/financial-difficulty

Make sure you keep making payments in the meantime.

If your lender is not a member of AFCA, get legal advice.

Other avenues you can try are:

  • Think about whether you have any insurance that you could claim on – eg. income protection, TPD or mortgage protection insurance.  You may have insurance through your super or through work (some have group policies for their employees);
  • Look into an early release of any superannuation you have. You should contact your Superannuation fund.
    • Do not get early release of superannuation unless your problems are temporary. If you use up what is available from your superannuation and are still unable to meet your repayments, you may find you lose your house anyway, and also have less superannuation when you retire. You should try to negotiate to add the missed payments to the end of the loan (“capitalise arrears”) and extend the loan term before considering superannuation. See our Accessing Your Super Early Factsheet.

IMPORTANT:  Don’t stop making payments and trying to get a repayment arrangement. If you are not sure you will ever be able to make the regular payments again in the future, consider putting your house up for sale, at the same time as asking for a repayment arrangement and increasing your income.

3. YOU HAVE RECEIVED A DEFAULT NOTICE

You need to take immediate action.  The lender can go to court as the next step towards repossessing your home, and they will add thousands in court and legal costs onto your mortgage.

If you can’t pay the arrears and your normal repayment before the 30 days expires, then before the 30 days runs out you should:

  • get a repayment arrangement in place and in writing (see instructions under step 2 above); or
  • lodge a complaint with the Australian Financial Complaints Authority (AFCA, https://afca.org.au/, 1800931678) and make sure you have a complaints reference number.  AFCA is a free complaints service and the lender has to put a hold on the account while you have a complaint open with AFCA.  You can lodge online through the AFCA website.

4. YOU HAVE RECEIVED A STATEMENT OF CLAIM

You need to get legal advice immediately!

A Statement of Claim for Possession means the lender has gone to court to start the process to repossess the home. 

The Statement of Claim needs to be “served” on you (generally given to you in person or left in your presence) and may also come with a “Notice to Occupier” which is sent in case there are tenants living there.

At this point:

  1. You can still lodge in AFCA for hardship or other complaints (such as irresponsible lending or you were forced into a loan) – up until there a judgment against you. This is free, and will put the court action on hold while AFCA looks into your complaint; or
  2. You can file a defence in court. A defence may be that you could never afford the repayments, or you were unfairly pressured into the loan (eg. family violence or economic abuse).  Get legal advice first – going to court is risky and you could end up paying the other side’s court and legal costs if you lose or something goes wrong
  3. You can do nothing. After 28 days passes, the lender can get a judgment and move to repossess the home and chase the whole amount owing

5. THE LENDER HAS A JUDGEMENT

You need to get legal advice immediately!

The lender can now ask the court to send the Sheriff (an officer who enforces court orders) to change the locks to your home and hand over the property to them.

The Sheriff will give you a Notice to Vacate with a date and time you need to move out by. You will have at least 30 days between when you get this notice, and when you need to move out. 

At this stage, you can:

  • Keep negotiating with the lender – but it’s often very difficult at this late stage. Your lender doesn’t have to agree. 
  • Dispute the judgment. If you don’t agree you owe the debt, get legal advice immediately.
  • You can still lodge a complaint in AFCA – but only for time to sell, refinance or move out. Get legal advice as lodging in AFCA does not automatically stop the eviction, especially if the eviction date is too close for AFCA to intervene in time
  • You can apply to the court for a stay or an urgent stay for time to sell, refinance or move. Get legal advice immediately, or book an appointment to see a Duty Registrar at the Supreme Court (warning: the Duty Registrar cannot give legal advice).

Do not leave this to the last minute – if your stay is not granted, you also need to be prepared to leave the home on the eviction date.

To get a stay, the most common reasons are :

  1. you are very close to selling the house (show evidence of a signed real estate agent contract or a contract of sale), or
  2. you are just about to get a refinance approved (show evidence of your loan application), or
  3. you are in severe personal hardship in relation to moving (bring along medical evidence, or evidence of being unable to find alternative rental accommodation).

An urgent stay is only for up to 7 days. You are given a few days to provide all of the evidence and reasons as to why you need to be granted a further stay and, if so, for how long.  You will need to go back to court within those 7 days to argue this.  The lender (or their lawyer) will be there and may argue why the Court should not give you more time, or you may be able to negotiate with them.

It is important you act quickly so you don’t need to keep going back to court to ask for more stays.  It gets harder each time to get a stay, you need good reason and evidence for the court to give you more time.  The lender will also be adding on their legal costs onto your mortgage (because the loan contract says they can).  Get legal advice as soon as you can.

  • Do nothing. Be ready to move out on eviction day. The sheriff will change the locks on the eviction date.  Contact the lender if you need to organise access to move any remaining belongings you were not able to move out in time.  The lender will usually engage a real estate agent and set the standard timeframe to sell a property at a public auction.  The lender will generally sell at the best price on the auction date. 

IS REFINANCING AN OPTION?

Sometimes, but it can be hard to get a loan when you’re already struggling. 

You can try but have a back-up plan too – especially if the lender has already started court action.

Be careful of predatory lenders that target desperate borrowers.   Make sure a refinance is an affordable long-term option for you.  Check:

  • The lender is reputable
  • You can afford the repayments
  • What is the interest rate, and how far can you afford rates to increase by?
  • Would a fixed or variable interest rate be a better option for you? Fixed as you know what your payments will be over the fixed term, but it may be more expensive than variable rates. There may also be very high exit fees if you still end up needing to sell or refinance before the term expires.
  • Who are you paying fees too, and what is the total amount in fees? How much your loan balance would be increasing to include these?
  • How long is the loan – will you be stuck refinancing every 1-5 years, with high fees added each time?
  • You are not being asked to sign up to a fake business loan (business loans have far fewer protections)
  • You are not paying or seeing a solicitor who isn’t actually giving you independent advice

If you can’t refinance – get advice, the earlier the better! Try negotiating with your existing lender. Even if your situation is hopeless it may be better for your home to be sold than to refinance and increase your loan considerably just to live in it for one more year.

Think about talking to a free financial counsellor on 1800 007 007.

DO I NEED TO SELL MY HOME?

If you can’t afford your loan repayments and won’t be able to afford your loan repayments for some years to come, you need to start thinking about selling.

You are more likely to get a better price for your home and avoid lots of legal costs if you sell your own home, instead of waiting for the lender to go to court after you fall too far behind.

The decision whether to sell your home is hardest when you are working towards being able to pay the loan, but don’t know when this will be.  Examples are

  1. You are unemployed and still trying to get a job but it’s been months, or
  2. You are ill and trying to get well but you just don’t know when you will be well, or
  3. You are waiting for a compensation payment –talk to your lawyer and ask about how long it could take, or
  4. You are going through a family law settlement, but it is dragging on and you don’t know how long it will take. Talk to your family law solicitor to try and get a realistic idea

You can keep pushing your lender for further hardship, but they may start saying no, because your hardship is not short term.  You can also escalate a complaint to AFCA, which will take time.  AFCA will decide if you can show you have a realistic plan to return to normal repayments in a fair timeframe. 

As time goes on, you will get further and further behind on your loan repayments and incur lots of extra interest.  You might get back on track, but interest, fees and legal costs will be eating into your equity as time goes by.  If a sale eventually happens, you may end up with much less than you could have if you sold earlier (or even end up with a shortfall that the lender can chase you for after the sale).

Another option you can think about is:

  1. Make a payment arrangement with the lender for up to 6 months;
  2. If by the end of the 6 months, you are not any closer to making normal repayments, you could then put your home on the market;
  3. Go back to the lender and negotiate for time to sell.

REMEMBER:  If you get a job, get well or get a large lump sum of money before your home sells, you can still go back to the lender to say you can now pay the loan and negotiate to get back on track with the loan (as long as the lender does not have a court judgment – get advice).

WHEN DO I HAVE TO MAKE A DECISION TO SELL?

Usually the earlier the better – but preferably BEFORE the lender commences any legal proceedings.

You can ask for time to sell at any time, but

  • the lender is less likely to agree later in the repossession process – it can be more difficult after judgment, and almost impossible after eviction;
  • the mortgage will grow bigger if you can’t cover the interest and fees being added on
  • it’s harder if the lender is worried you may delay the sale, or if the sale price won’t pay off the mortgage in full (‘shortfall’)
  • if the lender goes to court, thousands of dollars in court and legal costs gets added onto your mortgage
  • give yourself as much time as possible to sell your home and get a good price for it.

I’VE DECIDED TO SELL – WHAT DO I DO NOW?

STEP 1

Put your home on the market – usually you hire a real estate agent and get a conveyancer or property solicitor to draw up a contract of sale.

Price the home realistically so that it will sell in a reasonable time but for the best price possible. Tell your real estate agent what time frame you are working with. This will usually be under 6 months but could be under 3 months depending on what you’ve agreed to with your lender or where you are in the court process.

STEP 2

Tell the lender you are selling and give them copies of documents to show what steps you have taken. Examples are signed real estate agent contract, advertising of your home or front page of the contract of sale.

Ask for a hardship arrangement where you get:

  1. 6 months to sell your home (you may need to consider agreeing to 3 months, or even less if there’s court action in progress – but get legal advice first)
  2. Affordable repayments or postponed repayments (if you can’t afford anything) until the home is sold.

If the lender does not agree or has already started court action, get legal advice

NEED SOME MORE HELP?

We also have these other factsheets that may help:

  1. Fact sheet: Financial hardship
  2. Fact sheet: Credit reporting 
  1. Fact sheet: Dispute resolution
  2. Fact sheet: accessing your super early

For free legal advice, ring our Legal Advice line on 1800 844 949

For free financial counselling, ring the National Debt Helpline on 1800 007 007

Last Updated: August 2022