There are a number of things that can be done by a bank if a borrower defaults on a mortgage. The first is to sue the borrower on its personal covenants such as the obligation to pay the principal and interest under the mortgage contract. This means they sue for compensation for payment sewing. This can include any shortfall after the sale of the property. The second, an action taken by banks in recovering event is to enter into possession of the actual physical property to evict the borrower. The bank can also appoint a receiver to run the property if it is a business and hold the property in the hope that its market value will improve. The receiver must act in good faith. The receiver is the agent of the bank and is appointed by the court to administer the property.
Another strategy that the banking needs is to apply to the court for foreclosure if there is a default. Foreclosure removes the owner’s equity of redemption, and ownership passes to the bank. For Torrens title land, the bank must give notice to the borrower. If the borrower cannot pay within the time limit, the property must then be offered for sale by auction. If bids are too low to pay off the mortgage, and other assets or liberal are not enough to pay off the mortgage, the bank and then apply for foreclosure, and the property becomes the banks. For land in the general law ought system title, the mortgagee can apply to the court to remove the mortgagor’s equity of redemption. If the borrower cannot discharge the dead within six months, the borrowers interest is foreclosed on the mortgage becomes the absolute owner in equity as well in law.
The final major thing the bank can do is to exercise its power of sale. If the borrower defaults, the bank may enforce its security by selling the property. When it exercises its power of sale, the bank must give the notice required by statute, act in good faith and take reasonable care to obtain the true market value. On the application of the borrower, the bank may be ordered to exercise its power of sale, for example to stop interest accruing. The proposed action by a mortgagee to enforce its security under a mortgage may be met with various defences by the borrower including misleading and deceptive conduct under trade practices legislation. For example, there may be evidence that the banks conduct was misleading or deceptive and that he had given negligent advice in respect of the financing of its operations in the management of those finances. There may also be issues of unconscionability under the same legislation and common-law. In Australia, there is also the need to take into account the effect of the consumer credit code, which regulates mortgages over property securing the obligations of a debtor or a guarantor.