Mortgagee terminations

A small number of tenancies end not because the landlord or the tenant want them to end, but because the landlord has defaulted on a mortgage and the mortgagee – usually a bank or other financial institution – has taken proceedings to gain possession of the premises.

These proceedings take place in the NSW Supreme Court. When the court makes an order giving possession of a property to a mortgagee, it automatically terminates any tenancy at the property (Residential Tenancies Act 2010(NSW) (RT Act 2010) section 81(4)(b)). You are, however, entitled to not less than 30 days’ notice before you actually have to move out. This notice will come from the NSW Sheriff.

Finding out about mortgagee proceedings

There are a number of ways in which you might find out that your landlord’s mortgagee is taking proceedings (it is unlikely that you will find out directly from your landlord):

  • A demand from the mortgagee for possession of the premises.Mortgagees often write to tenants asserting that because the landlord is in default, the mortgagee is entitled to possession of the premises and the tenant should move out. Treat such a letter as advance warning of court proceedings: you do not have to move out until ordered to do so by the court. (Keep in mind, too, that the mortgagee and the landlord may yet settle their dispute – so if you move out in response to the mortgagee’s demand, and don’t give a termination notice of your own, you might be liable to the landlord for abandoning the tenancy!)
  • A notice that the mortgagee has commenced proceedings. A mortgagee is required to notify you when they commence proceedings (RT Act 2010 section 124). The notice will include details of the proceedings, including the Supreme Court file number, and contact details of the mortgagee or their lawyer. It is a good idea to contact the mortgagee or lawyer immediately and ask them to commit to giving you a reasonable amount of time to move out after the court makes the order for possession. If they agree, ask for the commitment in writing. If they do not agree, write to them and state what your circumstances are and how much time you would reasonably need to move out. (When the court makes its decision, it may ask the lawyer if they know anything about your circumstances – so sending this letter is a good way of getting your circumstances considered by the court.) See the Tenants NSW website for sample letter to a mortgagee.
  • A demand from the mortgagee for rent. A mortgagee may write to a tenant and demand that rent be paid to them, not the defaulting landlord. This is an unusual step, but it is lawful. Check that the mortgagee is registered on the title of the premises (do a title search) and pay according to the mortgagee’s instructions. Notify your landlord of what you’re doing and give them a copy of the letter (keep the original). Keep evidence of your payments.
  • A notice from the Sheriff.Even though you are entitled to notice of proceedings by a mortgagee, it still sometimes happens that tenants are not notified before the court makes the possession order. Where this happens, the possession order is still valid and enforceable by the Sheriff.

Can I get a tenancy with the mortgagee?

It is possible to apply to either the court or the NSW Civil and Administrative Tribunal for an order that creates a tenancy agreement between you (as the tenant) and the mortgagee (as the landlord) (RT Act 2010, section 125). The court or Tribunal can make this order considering the ‘special circumstances of the case’ (section 125(4)).

If the mortgagee’s proceedings in the court are still on foot, you will have to apply to the court for the order; if the court proceedings are completed, you can apply to the Tribunal. (Note that if you know the proceedings are currently before the court, you should not wait for them to be completed so that you can apply to the Tribunal; it is likely that the Tribunal will knock you back: Halaseh & Halaseh v Citibank Ltd[1996] NSWRT 139.) Your application must be made within 30 days of receiving notice of the mortgagee’s proceedings or, if you received no notice, within a ‘reasonable time’ after completion of the proceedings; in either case, it must also be made before the possession order is enforced (RT Act 2010, section 125(3); Residential Tenancies Regulation 2010, clause 22(5)).

Think carefully before applying for such an order, particularly if you would have to apply to the court. The order is hard to get (you need to show ‘special circumstances’) and if your application fails, it may be costly. It is usually better to negotiate with the mortgagee and their lawyer.

After termination

Once the court has ordered possession, the mortgagee will give the writ of pos- session to the Sheriff to enforce (only the sheriff can enforce a writ of possession). The Sheriff is required to give you not less than 30 days’ notice before enforcing the order (Sheriff Act 2005(NSW), section 7A(3)). You can move out at any time.

Also, for the 30-day period after the Sheriff’s notice, you do not have to pay rent or any fee to occupy the premises (RT Act 2010, section 122(2)(a)). If you have already paid rent for any part of this period, you are entitled to have it paid back to you (section 122(2)(b)) – but, as you would know all too well by this stage, your landlord is probably not a very good payer.