Abandoned goods after recovering possession of mortgaged property

The situation often arises where a mortgagee has taken possession of a property after default under a mortgage, but the mortgagor or their tenants (Owner) leave behind personal belongings, equipment or other goods (Unsecured Property).  In order to sell the mortgaged property, the Unsecured Property will need to be dealt with.  If not done properly the mortgagee may be exposed to claims from the owner for unlawfully interfering with the Unsecured Property, because despite it being left behind and appearing unwanted, the Unsecured Property might not actually have been abandoned.

If this situation is not dealt with adequately in the loan agreement or the memorandum of common provisions, there is an Act that deals with this situation in Tasmania known as the Disposal of Uncollected Goods Act 1968 (Tas) (Act).  The Act allows for, in certain circumstances, a person who has involuntarily received goods to apply to the Tasmanian Magistrates Court (Court) for an order authorising the sale of the goods so long as they remain in the Mortgagee’s possession.

Application of the Act

Before being able to apply to the Court for an order authorising the sale of the Unsecured Property, the mortgagee must give notice to the Owner of the Unsecured Property, requiring them to take delivery of the Unsecured Property that has been left behind within a reasonable period of time.  “Taking delivery” includes where the mortgagor gives directions as to the delivery of the goods.

If this notice is not complied with, an application can then be filed with the Court seeking authorisation to sell the goods. The application once filed must be served on the Owner.

Once an order is obtained, the order will usually authorise the sale of the goods by public auction after three months from the date of the order.  This period of time is designed to allow the mortgagor one last chance to recover their goods.

If the goods are still not recovered within this time, then the mortgagee will be authorised to sell them.  This can be arranged through an established auction house.

Practical Considerations

The prime consideration for a mortgagee when exercising its power of sale over mortgaged property, is making sure the property is vacant.  If there are personal belongings of the mortgagor or tenant left after taking possession, they will need to be moved into storage and insured. The costs of storage and insurance are recoverable from the mortgagor after the goods are sold.

There are strict rules regarding the service of notices and applications under the Act.  Documents must be served personally on the Owner, left with a person apparently over the age of 16 at the last known place of abode, or sent by registered post to the last known place of abode.  A difficulty arises where the Owner’s whereabouts are unknown.

In light of the above considerations, a commercial decision may be made as to whether the mortgagee simply disposes of goods that are of low or no value.  If this determination is made, accurate and detailed records of the nature of the goods should be made.  The risk for the mortgagee is that the Owner may bring an action for the wrongful disposal of their goods, however, if their value is lower than the cost of making the application it may be more commercial to take that risk.

If you have any questions about this article, please contact Kyle Somann-Crawford on 03 6235 5106 (kcrawford@pageseager.com.au).

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