Default & repossession non-compliance

Divisions 2 and 4 of Part 5 of the Code set out requirements in relation to enforcing mortgages (including the requirement to issue a Default Notice) and limitations on entering a person’s premises to take possession of mortgaged goods.

Importantly, under section 108 of the Code, if a creditor takes possession of mortgaged goods without complying with these Divisions, the court may order the creditor to return the goods to the mortgagor.  The court can make this order even if the default has not been remedied.

The default notice requirements are discussed in detail in Determining your client’s options.  In short, under section 88 of the Code, the credit provider cannot issue legal proceedings or repossess or take any other enforcement action unless and until:

  • the debtor has defaulted (i.e. is behind in payments);
  • the credit provider has given or posted a default notice to the last known address of both the debtor and any guarantor; and
  • the account remains in default after the expiration of the notice period, which must be at least 30 days.

Once the client gets the notice, there is at least 30 days (unless the default notice specifies a longer period) to consider options, including rectifying the default, applying for a hardship variation or negotiating another outcome with the creditor.

The default notice must be clearly labelled as a default notice and must contain the details set out in default notices, which are intended to make the client’s options clear.

You should explain to the client that if a subsequent default of the same kind occurs during the period specified for remedying the original default (normally 30 days), the creditor can take enforcement proceedings without further notice if it is not remedied within the period.

These pre-conditions do not apply if the credit provider proves certain grounds, including that there are reasonable grounds for believing that the mortgaged goods have been or will be concealed, damaged or disposed of; it cannot find the debtor despite reasonable efforts; or a court allows the credit provider to repossess (section 88(5) of the Code).

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