Once upon a time, I was a lawyer who acted for mortgagees. I used to repossess houses and call on guarantees. Sometimes I’d get mortgagors calling me in distress, saying, “How can the bank take my property? It belongs to me.” Sigh. Well, yes you do own it – but it is subject to the bank’s mortgage (really a statutory charge if you want to get technical).
Property rights are concurrent and multilayered. And, as we will see, sometimes they conflict. You are entitled to exclusive possession of your property while you meet the loan repayments of your mortgage. But once you stop paying your mortgage repayments, and once the lender has fulfilled certain conditions (including giving you notice of your default and demanding payment of the debt), the lender is then entitled to issue a writ of possession. Often, if no other arrangements are made, these actions progress to the point that the lender can then get a warrant for possession of the property pursuant to an order of the court. The lender can then ask the sheriff to repossess the property so that the lender can sell it off to meet the debt. The lender is not being unjust simply because it repossesses the property. That was the deal you made when you took out the mortgage. You wouldn’t have been able to get the money to purchase the property without the lender having that right. Still, it’s better to give people a few opportunities to sort out their difficulties before you bring the heavy hand of the law down on them in full force. Even when you do this sometimes, sadly, people don’t face up to reality until the Sheriff is knocking on the door (literally).
But what happens if there is a tenant in the mortgaged property which the bank purports to repossess? As Jo Tamar at Hoydens explains in this post, then there is a contest between the right of the lessee to possession, and the right of the mortgagee to possession. The original owner/mortgagor falls out of the picture. What rights does the tenant have in respect of his or her lease, at least on the face of it? Section 268 of the Residential Tenancies Act 1997 (Vic) provides as follows:
(1) If a mortgagee in respect of rented premises under a mortgage entered into before the tenancy agreement was entered into becomes entitled to possession
of, or to exercise a power of sale in respect of, the premises under a mortgage, the mortgagee may give the tenant a notice to vacate the premises.
(2) The notice must specify a termination date that is not less than 28 days after the date on which the notice is given.
In plain English, this means that once the mortgagee becomes entitled to the house or seeks to sell it, the mortgagee must give the tenant a notice to vacate which gives the tenant 28 days or more to leave the premises.
However, apparently the NAB has applied to the Supreme Court to get a ruling on the rights of tenants in mortgaged properties where the mortgagee did not consent to the leases. The Age reports that NAB is asserting that if it has a warrant for possession, its right to possession is immediate, and it does not have to give 28 days notice:
Renters face being evicted without notice when owners default on home loans if the National Australia Bank wins a Supreme Court battle against Victoria’s Sheriff.
Tenant groups have labelled the bank’s court action as ”ruthless” and ”cold hearted”, particularly after high-profile advertising promoting its customer-friendly face.
In a case that could have far-reaching implications for Victoria’s renters, NAB has taken the Sheriff to court after it failed to evict the tenants of two Ivanhoe East properties.
The mortgagor of the properties defaulted on repayments to NAB after letting them out without the bank’s knowledge, prompting it to seek repossession orders.
NAB wants the Supreme Court to force the Sheriff to evict the tenants without it needing to comply with the Residential Tenancies Act, which requires renters be given 28 days’ notice.
[Incidentally, if the Sheriff is still the same person who was Sheriff back when I was a banking litigator, then he's a thoroughly decent, compassionate and sensible guy, as are his deputies.]
Like Jo Tamar, I wonder why the NAB is doing this. Sure, it will save them costs, in that they won’t have to wait 28 days to sell the property. But the costs in public relations terms are immense. Already Crikey has an article (behind a paywall) which is critical of NAB and which features a derogatory cartoon. The comments on the Age article are incredibly negative. I think it’s pretty damn rotten myself. Maybe because I’ve been near the pointy end of enforcing warrants of possession myself; I’d feel distinctly uncomfortable about evicting a lessee in these circumstances. Maybe it’s also because I leased for quite a few years before we could afford to buy! It’s an arguable legal point, perhaps, but it’s hardly compassionate or fair. After all, it is not the tenant’s fault that the mortgagor defaulted or that the mortgagor leased out the premises without consent from the lender. Why should the tenant have to suffer because of the actions of another? We’ll see what happens on this, but if NAB succeeds, I think the State government should amend the Residential Tenancies Act to bring the rights of tenants where the mortgagor has not sought possession into line with the rights of other tenants under s 268 of the Residential Tenancies Act.
NAB has given up on the action, apparently because of the adverse PR.