Credit and Debt

Credit and Debt

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Case study 5: mortgage default

Peter’s mortgage default

Peter’s circumstances

Peter was a 40 year old man with a history of severe mental illness, including recent involuntary hospitalisations.

Peter was referred to Homeless Law by his case worker after Peter received a Notice to Vacate from the Sheriff, stating that the Sheriff would be repossessing Peter’s home as a result of his mortgage arrears.  When Peter came to Homeless Law, the repossession was scheduled to take place the next day.   

The mortgagee (i.e. the bank) had already obtained default judgment in the Supreme Court and had obtained a Writ of Possession.  Peter also had substantial arrears with the local council for rates.  Under section 181 of the Local Government Act 1989 (Vic), a local council can sell or transfer land if rates remain unpaid for three years – Peter had not paid rates for six years so the council, in addition to the mortgagee, had a right to sell Peter’s home.   

 

Peter’s main sources of income were a workers’ compensation payment a Disability Support Pension (DSP). Peter was also being assisted to make an application to the Victims of Crime Assistance Tribunal (VOCAT) for compensation for crimes committed against him. 

Note

Because of the severity of Peter’s circumstances, including his mental illness and ongoing fragility (and consequent limited ability to engage with ordinary legal services), his very limited income, his minimal equity in the property and the urgency of the situation, Homeless Law accepted Peter’s matter.  This will not always be possible or appropriate in the case of clients with mortgages and you should check with Homeless Law on a case-by-case basis. 

Peter’s instructions

Peter wanted to keep his home – it was the house his children had grown up in.

He had fallen behind on his mortgage because he had been hospitalised and his DSP had been suspended, but he had recently taken a boarder in and he instructed us that he would now be able to make the monthly repayments on the mortgage.

Peter also instructed us to offer to make additional monthly payments of approximately $150 per month to chip away at the $12,000 he owed in arrears. 

Steps taken in Peter’s matter 

  • Peter’s Homeless Law lawyer immediately contacted the lawyers for the mortgagee. She explained that Homeless Law was acting for Peter and that he was a vulnerable individual. She explained the circumstances that had led him to fall into arrears on his mortgage (including his hospitalisation for mental illness), and also explained that Peter had the capacity to make continuing mortgage payments in the future. Peter’s lawyer negotiated a verbal agreement that the mortgagee would put a hold on repossession of Peter’s home while Homeless Law attempted to negotiate with them on Peter’s behalf.
  • The same day, Peter’s Homless Law lawyer sent this letter to the mortgagee’s lawyers, confirming the request for a hold on repossession. This letter explained that Peter had the financial means to meet future mortgage payments and to begin paying off his mortgage arrears.  Details of Peter’s income and expenses were provided, as well as supporting documentation establishing Peter’s hardship and explaining the circumstances that had led Peter to fall into arrears (for example, medical reports regarding Peter’s recent hospitalisation and the suspension and subsequent re-instatement of his DSP).   
  • Peter’s lawyer then contacted the Sheriff’s Office and spoke directly to the officer identified on the Sheriff’s Notice to Vacate.  The lawyer explained that Homeless Law was acting for Peter and was engaged in negotiations with Peter’s bank to avoid repossession. Peter’s lawyer negotiated an agreement with the Sheriff’s Office that they would not move to repossess the house while these negotiations were taking place. Peter’s lawyer confirmed that there was a note on the Sheriff’s system reflecting this agreement and made a clear file note of this agreement. Peter’s Homeless Law lawyer also sent this letter confirming the agreement to the Sheriff’s Office.
  • Peter’s lawyer wrote this letter to the local council, requesting that the council accept a payment plan for Peter’s rates arrears, and asking the council to withdraw its notice for the sale of Peter’s property. Peter’s lawyer based this request on Peter’s ongoing serious health problems and financial hardship, as well as his willingness to enter into a payment plan and to see a financial counsellor. 
  • Peter’s lawyer continued to engage in ongoing negotiations with the mortgagee’s lawyer and the local council.  It was extremely important that Peter made the agreed repayments on time so Centrepay deductions were set up where possible. 

Note

Importantly, in this case, judgment had been entered in default and an Order for Substituted Service had also been made by the Supreme Court because Peter was found to have avoided service.  Because judgment had already been entered, EDR was not an option and because of the Order for Substituted Service and the mortgagee’s lawyer’s Affidavit of Service, neither was challenging the judgment on the basis of failure to serve the Writ.  The client had also previously been granted a hardship variation.  On top of this, Peter was not in a position where he could risk incurring further enforcement costs – negotiation was the only option available to him.

Outcome

After ongoing negotiations with the mortgagee’s lawyers, Peter’s Homeless Law lawyer reached an agreement that the bank would not repossess Peter’s house, subject to Peter: continuing to make mortgage repayments; beginning to pay off arrears; applying any monetary compensation received from VOCAT to his mortgage; and paying all of the mortgagee’s legal costs in relation to their dispute with him (i.e. having an additional $10,000 rolled into his mortgage).  Peter’s lawyer wrote this letter to the mortgagee, confirming the agreement and requesting the mortgagee’s written confirmation. 

 

Peter’s Homeless Law lawyer also reached an agreement with the council that they would not sell Peter’s property, subject to Peter paying his council arrears at a rate of $50 per fortnight.