Transparency lacking in mortgagee sales

02/09/2011 15:15

THE Consumer Council is concerned that some mortgagee sales are not being transparent, with home owners left in the dark in regards to the disposal of their property.

The Council has observed the increasing number of homes going on mortgagee sales in recent months. Many home property owners whose homes have gone for repossession or mortgagee sales are losing the entire life savings and a roof over their heads. The downturn in the global economy and the rise in the cost of living is wreaking its toll on homeowners who divert a significant portion of their salaries and wages to home loan repayments.

Financial institutions use mortgagee sales to recover arrears and costs. However, the Council has found cases where homeowners were unaware of the amount the banks recover from the sales. The lack of transparency in the sale of repossessed property exposes many risks where bank employees and lawyers can have unfair advantage over property that are put up for sale from defaulters.

The Council is of the view that public auctions would be a fairer and more transparent way of selling off repossessed properties. We are calling on policymakers and stakeholders to seriously consider implementing rules to govern the sale of mortgaged property. Auctions can be made mandatory and regulations be imposed to control the bidding process so that everyone knows their rights, responsibilities and obligations through the auction process. Auction laws should take modern business practice into account and go into in-depth detail about what an auctioneer must say at an auction, how auction companies advertise and what their contracts say.

We should take our cue from countries like Australia that have real estate auctions with strict mandatory provisions to govern the auction process.

Unlike mortgagee sales, auctions can reveal the true market value of a property and are conducted in an open forum where all bids are known, and participants are given immediate feedback on the property’s value. Auctions eliminate long negotiation periods where interest pile up, buyers know they are competing fairly and on the same terms as all other buyers and receive comprehensive information on property via due diligence packet. Any consumer taking part in an auction can easily and quickly make market comparisons when they see biddings in the same place at the same time.

Meanwhile, Council advises home owners facing foreclosure to make immediate arrangements with their banks on ways of making their payments. Intending homebuyers should seek the assistance of a licensed, qualified and trusted estate agent before they engage in any home dealings.