When Christina contacted us, it was clear she was experiencing a high degree of stress referring to ‘mental imbalance’ and ‘tearful depression’. After carefully considering her complaints, it was our view that the best outcome for all concerned would be the immediate sale of the property. Christina borrowed $950,000 from a finance company to buy a family home from her daughter and son. At the time Christina was on ACC and receiving income protection payments from her insurer, but Christina’s mortgage broker reassured the lender that Christina was just about to return to work. Christina’s accountant also prepared her accounts showing that the loan repayments were easily affordable. The loan was approved and in October Christina signed the loan agreement, drawing down the loan in December. Christina made the first three loan payments without incident.
Christina later said that, in November, before the loan was drawn down, she had another accident, but that ACC did not accept her claim and neither did her insurer.
The following April Christina called the finance company to say that her mother, who lives overseas, was very sick and Christina needed to visit. Christina asked if she could have a three-month payment deferral while she visited her mother. The finance company agreed to a one-month deferral, with the payment to be made up over the next three months. Christina agreed.
Unfortunately, this was the beginning of a difficult time for Christina. The finance company’s records showed frequent requests for payment deferrals and broken promises to pay. About a year later Christina said that she was in the process of selling an overseas property and would use the proceeds to repay her debt.
The money was not forthcoming, and the finance company asked Christina to appoint someone in New Zealand who would accept a Property Law Act notice (PLA notice). If the PLA notice expired unremedied, the finance company would be able to step in as mortgagee and sell the property.
Christina said she would put the property on the market. Although the property was listed, it did not sell.
By now Covid-19 had intervened and Christina was stuck overseas. Although Christina was continuing to try to sell the property, the finance company lost patience and applied to the court for substituted service.
The application was successful, allowing the finance company to serve the PLA notice on Christina by email and by fixing the PLA notice to the front door of the property. Christina replied to the email saying her real estate agent was on holiday.
The PLA notice expired unremedied in March 2021, giving the finance company the ability to sell the property. About a fortnight before the auction date Christina complained to FSCL about the finance company. The finance company agreed to put the mortgagee sale action on hold while we looked at the complaint.
Christina said that the finance company should not have approved the loan because her income was insecure, coming from ACC and insurance. Further Christina said the finance company should have known that she was injured for a second time before the loan was drawn down and declined to lend.
Christina complained that the finance company and the mortgage broker had conspired to charge her unreasonable application fees. The finance company had charged $4,295 and the broker $4,750. Christina also complained that the interest rate was too high. At the time she borrowed the money bank interest rates were around 4.45% per annum but the finance company charged her 7.75% per annum.
Finally, Christina said that the finance company had no authority to sell the property because the PLA notice was not properly served. Rather than being personally served on Christina the notice was just stuck on a door.
The finance company were confident they had followed the correct loan application process and that the lending was affordable. The letter of offer set out the loan terms for Christina to check. The finance company also said that they had the legal right to sell the property, having applied to the court for permission to depart from the usual requirement to personally serve the PLA notice on Christina.
While we had some concerns about lending a large sum to someone who’s income was coming from ACC and insurance, on the basis of the information presented to the finance company, the loan appeared to be affordable. Instead it seemed that Christina’s changing circumstances had caused the default.
Under the Responsible Lending Code, the finance company were obliged to consider a hardship relief application. Although Christina had not made a formal application, we could see that the finance company had done everything they could to help Christina keep the house.
We were also satisfied that the brokerage and establishment fees had been disclosed, as had the interest rate.
Finally, we explained to Christina how the finance company had gained the ability to sell her house. When Christina borrowed the $950,000, she gave the finance company a mortgage over the property. If Christina did not repay the loan, the finance company could sell the property to recover the debt owed.
The Property Law Act sets out the process to be followed before a mortgagee can sell a property. Usually this involves serving the PLA notice on the borrower in person. However, because Christina was overseas and not prepared to appoint someone else to receive the PLA notice, the finance company applied to the court.
The court agreed that instead of serving the PLA notice in person, the finance company could serve the notice by email and by fixing the PLA notice to the front door. Christina had replied to the email with the PLA notice attached, so she knew what she needed to do to avoid the finance company selling the property.
We were satisfied the finance company had properly served the PLA notice and, given that the notice has expired unremedied, the finance company were entitled to sell the property.
After receiving our preliminary decision, Christina put the property on the market again with an imminent auction date. We hoped that the property will sell for enough to repay her debt. However, if the property does not sell, it was our view that the finance company was entitled to sell the property at a mortgagee sale.
Christina was still of the opinion that the lending was not responsible and that the interest and fees charged were too high.
We confirmed our view that the lending was affordable, and it was a change in circumstances that had led to the default. The interest and fees were disclosed to Christina before the loan was drawn down.
We did not uphold the complaint.
Insights for consumers
If your circumstances change making repaying a loan unaffordable it is important to talk to your lender early. Most lenders will allow you time to sell a property voluntarily before they step in as mortgagee and sell the property but making promises you cannot keep will not help.