Guest Author R.M.L
Once upon a time a person whose property went up for mortgagee auction must have been foolish. Obviously they had bought something more expensive than they could afford.
Or they had taken risks in other areas of their life – such as their business – and used their house as collateral. They had made some poor decisions, unaided by the helpful financial support advice that can be found on Love Money, national newspapers or their bank of choice, and the consequences had come home.
Once the mortgagee auction was just another opportunity to get a deal.
Now the mortgagee sale is ours. And perhaps now I understand it a little better.
While newspaper journalists may confidently state the global financial crisis is all but over, for those in property there is a different tale to tell. We personally had quite a few properties, most of which were mortgaged with an LVR of 50-70%. That is, the amount of the mortgage was somewhere between 65% and 80% of the value of the property.
In the economic climate of 2006 and 2007, this was very secure. Safe as houses, in fact.
We had taken the mortgages as high as that to fund expansion of our businesses.
Businesses in financial planning, mortgage broking and real estate. A nice spread of industry, to ensure our eggs were not all in the same basket.
When the GFC hit, we should (with hindsight) have bailed out of the businesses immediately. Laid off the staff, shut the doors, battened down the hatches and waited for the storm to subside. Instead we kept going, kept paying the sales staff who sold nothing, and the support staff with nothing to support. In ones and twos we sold the properties, dismayed by how little they fetched in comparison to their 2006 valuations.
We haemorrhaged money, paid for the security of others over ourselves. Until we ran out of options – a position that our property portfolio protected us from for too long. The staff were laid off, the businesses closed.
Every remaining property we had was on the market, except one. None could find buyers willing to pay as much as the mortgage. So obviously property values in those areas have fallen by more than 20-35%, and have not bounced back. Two of the properties are now in a mortgagee auction process. Another – our home – may be mortgagee sale at any
moment.
Did we make foolish decisions? I don’t think so. Life would certainly be easier if we declared bankruptcy and walked away from the business leases and remaining debts. But we are sticking with it, trying to do the right, the honourable thing by our creditors.
So now that a mortgagee sale is no longer unthinkable, now that our bad credit rating is – as one bank emplyee told me earnestly the other day – “Not your fault,” where does virtue lie? If it isn’t a clean credit rating and uncomplicated relationship with the lenders, what is it? Because I want it back!