Mortgagee sales figures tend to hog the headlines but only a small percentage of loans gone bad ever get to that stage.
The first step towards a mortgagee sale is when a bank serves notice under the Property Law Act (PLA). The mortgage holder then has not less than 20 working days to pay the amount in default. If the mortgage holder fails to pay, after that period the mortgagee - the lender - can proceed to sell the property.
Unlike in the US where banks take possession of properties where their owners have defaulted on the mortgage, it is extremely rare for a bank to take possession in New Zealand.
While in the US, the only recourse a lender has to recover money lent on a property is the property itself, in New Zealand, if a property sells for less than the mortgage is worth, the mortgage holder remains liable to pay the difference.
ASB Bank says less than 25% of its PLAs resulted in mortgagee sales in the 12 months ended September, 2009 and that the number of PLAs issued was little changed from the previous year.
ANZ National Bank's financial customer management general manager Lynne Sutherland says less than 20% of her bank's PLAs end in mortgagee sales. "Once they get a PLA, people do sort things out," Sutherland says.
However, sometimes the same customer may default again, leading to multiple PLAs being issued, she says.
Kiwibank was the only one to provide actual numbers. Its credit recovery general manager Karen Taylor-Edwards says in the 12 months ended September 30, 2009, Kiwibank issued 77 PLA notices.
Of those, 52 "cured" - the borrower paid the amount in default - while six customers voluntarily sold their properties before the bank had to enforce its right to sell and another three customers were able to refinance with other institutions.
Only 16 actually proceeded to being mortgagee sales, Taylor-Edwards says.
While it was suggested to Landlords.co.nz that banks may be withholding properties from sale until the market improves, that appears extremely unlikely, given their customers remain liable for the full mortgage and their interest bill keeps growing through any delay.
However, Taylor-Edwards says where a customer has a reasonable amount of equity and the customer wishes to delay selling in the hope the market may improve, Kiwibank is more likely to allow extra time.
"We make it as fair and equitable to the customer as possible whilst looking after the bank's position," Taylor-Edwards says.