A bank’s power of sale
Section 109 of the Conveyancing Act 1919 entitles all mortgagees (including banks) to sell a property upon which they have a registered mortgage should the owner of the property (the debtor) default in making repayments. It is not necessary for the loan document to include a clause allowing the bank to do this, although many still choose to do so.
A bank exercising its power of sale can sell in any way they want (by private treaty, auction etc) and subject to any conditions it thinks are appropriate.
Banks are required to first serve a notice on the debtor advising of their intention to exercise their power of sale if the outstanding amount is not paid within one month. If payment is made within this time, the debtor’s default is deemed not to have happened. If the outstanding amount is not paid, and the bank proceeds to exercise their power of sale, they are required to comply with a standard of care. Generally, the bank should take reasonable steps to obtain the true market value for the property. The bank is required to not only consider its own interests in relation to the sale, but also the interests of the debtor.
The bank should do the following when selling the property:
Ensure it is adequately advertised;
Engage an experienced valuer or real estate agent to assess the value of the property before it is marketed for sale; and
Employ a competent agent to handle the sale.
If the bank is found to have breached these duties, it will be liable to the debtor for the amount that would have been received if not for the bank’s breach.