Can you stop the bank from selling your property by mortgagee sale?

A mortgagor may be entitled to relief on a number of different grounds, either technical or substantive. Technical grounds might include non-disclosure, or faulty disclosure, by the mortgagee pursuant to the Credit Contracts and Consumer Finance Act 2003 or deficiencies in the form or service of a Property Law Act notice. Substantive grounds might arise from failure by the mortgagee to take reasonable steps to maximise the sale price of the property, oppressive conduct on the part of the mortgagee, or the presence of such factors as misrepresentation, undue influence or mistake. If grounds can be established, one remedy which may be available to a mortgagor is an injunction to restrain the sale.

Such an injunction is not lightly granted and the Court will be reluctant to interfere with the mortgagee’s rights without a compelling reason. The Court must first be satisfied that there is a serious question to be tried and, if that hurdle is surmounted, will then look at the balance of convenience between the parties and what degree of loss might be suffered by either if the injunction is granted or declined.

The first plaintiffs (Ko and Jong) owned a property out of which the second plaintiff, New World Vision Centre Ltd (“New World”), operated a business. New World was a family company controlled by Ko and Jong. It was in debt to the defendant (Tea) and Ko and Jong guaranteed the debt and gave a mortgage over their property to secure it. Significant defaults were made under the loan and a Property Law Act notice was issued in October 2005. Correspondence ensued between the parties’ solicitors and indications were given that the loan was to be repaid. No repayment was made and in March 2006 the mortgagee accepted a tender offer which had been made for the property. Four days before the sale was due to settle, the mortgagor filed these proceedings asking for an injunction to halt the transaction.

The Court refused to grant the injunction sought by the plaintiff on the grounds that:

1) the defendant had provided information indicating that it had significant assets and was in a position to pay any damages awarded against it;
2) granting an injunction would involve trouble and expense to a third party, namely the purchaser pursuant to the sale agreement;
3) there appeared to be real doubt that the mortgagor was actually able to redeem if given the chance to do so. The Court commented that it would expect to see acceptable evidence of ability to repay before granting an injunction and no such evidence had been produced.

The mortgagee here met its obligations to act fairly during the sale process, make reasonable efforts to achieve a maximum sale price, keep the mortgagor informed of what is happening and avoid situations which might lead to accusations of oppressive conduct and that was obviously a factor in the injunction being refused. Mortgagors should note that an injunction is unlikely to be granted unless it can be convincingly shown that any loss could not be compensated by an award of damages and that there is an actual ability to repay the mortgage.

Please note that the above information is intended to provide general information only. The contents contained in this article do not constitute legal advice and should not be relied on as such. For legal advice please contact our professional team at Forest Harrison.