A mortgagee sale is a lender selling a property under its mortgage because the borrower has defaulted on the loan. Mortgagee in possession means the lender has taken possession of the property so it can sell it. The lender has to take reasonable care to sell for not less than market value. But the contract may strip out the usual warranties, the inclusions and the promise of vacant possession, so the review before you sign matters more, not less.
You have seen the listing. “Mortgagee in possession. Must be sold.” The photos are a bit grim, nobody is quite sure who still lives there, and the group chat has already decided it is a bargain.
Maybe. Here is how a mortgagee sale works in NSW, what the contract changes, and what to do before you bid or sign. If you are the owner who got the letter from the bank, there is a section for you further down.
What is a mortgagee sale, and what does mortgagee in possession mean?
When you borrow to buy a home, the lender registers a mortgage on the title. That mortgage gives the lender a power of sale. If the borrower defaults and does not fix it after a written notice from the lender, the lender can sell the property to recover the debt. In NSW the lender has to serve that notice first, and the default has to continue for the period in the notice, which is at least a month.
The lender sells as mortgagee, not as owner. It never lived there. It has never met the hot water system.
Mortgagee in possession means the lender has taken possession of the property so it can sell it. In practice that usually follows a Supreme Court order for possession, carried out by the Sheriff. Legal Aid NSW explains the steps from the borrower’s side in its guide to mortgages and repossession.
One more thing. A borrower who wants to stop the sale needs to act before the lender signs a binding sale contract. Once that contract exists, paying out the mortgage will not generally give the borrower a right to stop the sale, and any right to cancel depends on the contract and the circumstances. That is why some mortgagee contracts let the lender pull out if the borrower pays out before completion.
The bank is not selling its own house. It is selling someone else’s, under its mortgage.
Is a mortgagee sale cheaper?
Sometimes. Not by design.
The lender has a legal duty when it sells. It must take reasonable care to make sure the property sells for not less than its market value or, if there is no clear market value, the best price it can reasonably get. That duty is in section 111A of the Conveyancing Act 1919, and it applies to the agent the lender appoints as well.
The lender also has no reason to dump the place. The sale money pays the costs of the sale and the loan, then any later mortgages and charges in order of priority. Only what is left after that goes to the borrower, not the bank. So the listing says “must sell”, and that is true. It does not say “must sell cheap”.
A mortgagee sale in NSW may go to auction rather than private treaty. At auction the crowd sets the price, not the bank. Where a bargain does turn up, it is usually because the house is tired, the photos are honest and the contract scares people off.
The discount, if there is one, is in the condition and the contract. It is not a gift from the lender.
What is different about a mortgagee sale contract?
A lender may use the same standard NSW contract as any other sale, with extra special conditions, but the actual contract has to be checked. There is no special mortgagee version of the printed terms. The difference is in the special conditions at the back, and in a mortgagee sale there are usually a lot of them. Our guide to the contract for sale of land in NSW explains how the two fit together. In short: special conditions can change the printed terms, cut down a buyer’s rights or add charges if settlement runs late. A buyer’s conveyancer reads them first.
| Item | Usual sale | Mortgagee sale (check yours) |
|---|---|---|
| Who is selling | The owner | The lender, as mortgagee under its power of sale, not as owner |
| Warranties and disclosure | The seller gives warranties and discloses by attaching documents to the contract | The prescribed documents and warranty still apply, but the lender says it knows nothing about the property and excludes what it can |
| Inclusions | Listed on the front page: the dishwasher stays if it is on the list | May be none promised, with what is there sold as is |
| Vacant possession | The front page says vacant possession or subject to a tenancy | May not be promised. The borrower or a tenant may still be there |
| Requisitions and claims | The buyer can raise requisitions and may claim for errors | Limited or excluded |
| Lender’s right to pull out | No equivalent | Some contracts let the lender rescind if the borrower pays out the loan before completion. Without that clause, a payout after a binding contract does not generally stop the sale |
| Completion | The date on the front page of the contract | May be short, and may be an auction contract |
Every line in that right-hand column is practice, not law. Lenders draft their own special conditions and they are not all the same. Your contract decides.
Two things the lender cannot usually strip out. The prescribed documents still have to be attached to the contract, and the prescribed warranty about the land still applies, because the Regulation does not exempt a sale by a mortgagee. But remember what those cover. In NSW a seller has no general duty to tell you about physical defects in the building. There is no general warranty that the building is free of defects. The prescribed warranties do cover certain building-related matters, so they are not limited to title, but they are not a condition report. With a lender that never lived there, that is close to all you will get.
The same goes for what is in the house. If the agent says the dishwasher or the curtains stay, that only counts once it is in the contract; our guide to chattels and fixtures explains how to get it there. In a mortgagee sale it may not be in the contract, and whatever the borrower left behind may be sold with the property as is. Budget for a skip.
When the transfer is registered, the selling lender’s mortgage and any registered mortgage or charge behind it come off the title. What happens to a caveat or a tenancy depends on the interest and its priority, so have the title checked before you bid. Our guide to caveats on property in NSW covers what a caveat does and does not block. And your title cannot be challenged later on the ground that the lender broke its duty to get market value; the borrower’s remedy for that is damages against the lender.
Do you get a cooling-off period on a mortgagee sale?
It depends on how you buy, not on who is selling.
By private treaty
Most private treaty purchases of an established home in NSW come with five business days of cooling off, unless an exception applies or the period is validly changed. If you use it, you forfeit 0.25 per cent of the purchase price. A mortgagee sale by private treaty is no different: there is no mortgagee exception, and the Regulation says a sale by a mortgagee is not exempt. The detail, including the section 66W certificate that waives cooling off, is in our guide to the cooling-off period in NSW.
At auction
There is none if you buy at auction, or exchange on the same day the property was passed in. If a property is passed in at auction and you exchange on a later day, you usually get the full five business days, unless an exception applies or the period is changed by agreement. For the traps, see the mistakes buyers make at auction.
Since a mortgagee sale may go to auction, assume you will have no cooling off and do the work first. At a mortgagee auction there is no safety net, so bring your own.
What should you do before you bid or sign?
The same things as any purchase, in the same order, with less room to skip any of them.
- Contract reviewed first
- Building and pest, if you can get in
- Strata report for a unit
- Finance sorted before auction
- Budget for the clean-up
Make your offer first and sign nothing; once it is accepted, send us the contract. At auction it is the other way round: the review happens before you bid. In a mortgagee sale the review is where you find out what the special conditions take away, so it is the step you cannot skip.
Access is the awkward part. If the borrower is still living there, inspections may be limited to set times, and an inspector may get less time than usual. Ask early, and see our guide to building and pest inspections before you buy for how to choose an inspector. If you cannot get an inspector in at all, price that in. Once the hammer falls there is no going back to look.
Buying a unit? The strata report is a separate document, and it is the one most likely to hold a surprise. Our guide to strata reports in NSW covers what to read. Check the levies closely, because unpaid strata contributions can leave a new owner exposed. Look at the section 184 certificate, the protections the strata law gives a buyer, and what the contract says about those amounts.
Finance has to be unconditional before auction day, because the auction contract will not wait for your bank. Our guide to subject to finance and unconditional contracts in NSW explains the difference between pre-approval and the real thing.
Find out who is living there. If you are buying it with a tenant in place, what passes to you is the keys and the tenancy, not an empty home. Where the contract does not promise vacant possession at all, ask your conveyancer what that means for you before you bid, not after. Our guide to settlement day in NSW explains what happens when the keys change hands.
Two smaller things. Title insurance is a one-off policy that covers certain problems with the property or its title that were already there when you bought it and that you did not know about. It is worth a look here; our guide to title insurance in Australia explains what it covers. And if the property is new or commercial, ask your accountant about GST. The ATO explains when a mortgagee in possession has to charge GST; an established home usually carries none.
What happens to the borrower?
If you are reading this because the bank wrote to you, the process has steps, and each step has a window. Nothing happens overnight.
Your lender can send you a default notice if you fall behind with your repayments, and you get time to catch up before anything else happens. If that passes, the lender can go to the Supreme Court for an order for possession, and once that order is made, the Sheriff can evict you from the property and change the locks. You can also apply to the court for a stay to give you time to sell, refinance or move out.
The lender then sells, which may be at auction. Once the loan, the costs of the sale and any later mortgages or charges are paid in order of priority, any money left over is paid to you. If the sale does not cover the debt and the costs, the lender can ask you to pay the balance. If you are having trouble making repayments, you can apply for a hardship variation with your lender.
Get help early. Legal Aid NSW and the National Debt Helpline both help people in exactly this spot, for free. The earlier you call, the more options there are. Defending possession proceedings is court work for a solicitor rather than a licensed conveyancer, and it is not work a conveyancing firm runs, so Legal Aid NSW is the right first call.
What does this mean for your purchase?
A mortgagee sale is a normal purchase with the safety rails taken off. The market sets the price, the lender promises almost nothing, and the contract tells you exactly how little. So the order of work is the usual one:
- Send the contract for review before you bid or sign.
- Get a building and pest inspection, and a strata report for a unit, if you can get access.
- Have finance unconditional before auction day.
- Find out who is in the property and what the contract says about possession.
- Budget for what the lender will not do: the clean-out, the repairs, the things that were “included” in the listing but not the contract.
Do that and a mortgagee sale is just a sale with a shorter inclusions list.
If you want the contract read before you bid, Titlespace is a conveyancing law firm based in Sydney acting for buyers, sellers and transfers in NSW, VIC, QLD and the ACT. See our conveyancing for buyers, or for the local rules start with conveyancing in NSW.
Reviewed by Marc Ryckmans, Legal Practitioner Director, November 2026. Last updated November 2026. This article is general information about mortgagee sales in NSW. It is not legal advice about your transaction.
The content of this blog post is intended as general information and should be considered broad guidance only. It does not constitute legal, financial, or tax advice and should not be relied upon as such. Every property transaction is different, and we recommend seeking personalised advice from a qualified professional before making any investment or legal decisions.
Questions buyers ask about mortgagee sales
Can a mortgagee sale be stopped?
Sometimes, by the borrower, and timing decides it. A borrower should act before the lender enters a binding sale contract, by paying out what is owed under the mortgage, including the lender’s costs. Once that contract exists, paying out the mortgage will not generally give the borrower a right to stop the sale, and any right to cancel depends on the contract and the circumstances. Some mortgagee contracts give the lender the right to rescind if the borrower pays out before completion, so a buyer can lose the property through no fault of their own. A borrower can also ask the Supreme Court for a stay to buy time to sell or refinance. A buyer cannot stop a mortgagee sale; a buyer can only decide whether to bid, and the contract review is where you find out what you are bidding on.
Does a mortgagee sale clear the title of other debts and caveats?
Partly. When the transfer is registered, the selling lender’s mortgage and any registered mortgage or charge that ranks behind it are removed from the title, and a caveat claiming under an unregistered mortgage or loan may be removed too. Interests registered ahead of that mortgage generally stay on the title, and whether a lease survives depends on the lease and its priority. Other caveats are assessed by NSW Land Registry Services, and a caveat may or may not block the transfer depending on its wording; our guide to caveats on property explains how that works. Unpaid rates and strata levies are a separate question, answered below.
Can you negotiate on a mortgagee in possession property?
On price, yes, the same as any sale. If it is by private treaty you make an offer, and if it is passed in at auction the agent will take offers afterwards. On the contract, less than usual. Lenders tend to sell on their own special conditions and are slow to change them, because the lender is selling under a power and wants a clean, quick sale. It is still worth asking: a longer settlement, a promise of vacant possession or a fix to a condition that does not work can all be requested, and the worst answer is no. Make your offer first and sign nothing; once it is accepted, send the contract for review while there is still something to negotiate.
Who pays the unpaid rates and strata levies on a mortgagee sale?
Check the contract, because this is where mortgagee sales differ most. In a usual NSW sale, council rates, water rates and strata levies are adjusted at settlement so each side pays for the part of the period it owns. A mortgagee contract often limits what the lender will adjust, and some put arrears that have built up on the buyer. Unpaid strata levies, including special levies, can become yours as the new owner, and rates or taxes left unpaid on the property can become your problem too, so your conveyancer checks the strata certificate and the rates searches before you bid, not after. If the contract is silent or the numbers look large, ask before you commit.
What is the difference between a mortgagee sale and a deceased estate sale?
Who is selling, and what they know. In a deceased estate the executor sells as the owner’s legal representative, usually after probate, and sells the property with the usual contract and the usual inclusions; the executor may not know the house well, but the contract works the same way as any other sale. In a mortgagee sale the lender sells under the power in its mortgage, not as owner, and its contract may strip out the warranties, the inclusions and any promise of vacant possession. Both can be sold “as is” and both may be auctions, but a deceased estate is a sale by someone who owns the property and a mortgagee sale is a sale by someone who holds security over it. The contract review is where the difference shows up.
Get a second opinion on this article
Open it in your AI assistant with a summary prompt ready to go.
Gemini and Copilot don't accept a prompt in the link yet, so we copy it for you to paste. AI summaries can get things wrong. For advice on your situation, talk to our team.
Share the Post:
