Insurance and Finance for Mortgagee Sales in New Zealand

Two areas trip up buyers in mortgagee sales more than anything else: insurance and finance. Properties sold "as is, where is" can be hard to insure, and lenders have strict conditions around finance approval. This guide explains each so you can prepare properly and avoid costly surprises.

Many buyers focus all their attention on the auction itself and miss the critical groundwork needed before auction day. Getting insurance arranged and finance pre-approved can make the difference between a smooth purchase and a stressful one.

Insurance: Why It's Different for Mortgagee Sales

Standard insurers can decline cover for mortgagee sale properties. Here's why insurance is a challenge for these properties:

• Properties sold as is, where is: Standard insurers are concerned about unknown defects and may require extensive inspections before agreeing to cover the property.
• Unknown property history: The lender may not have detailed information about the property's maintenance history or any prior damage. This uncertainty makes insurers nervous.
• Remedial or compliance issues: Properties with known remedial work (such as weathertightness issues, foundation problems, or Building Code non-compliance) are difficult to insure through mainstream providers.
• Vacant properties: Many mortgagee sale properties have been vacant during the default and sale process. Insurers see vacancy as a higher risk for theft, vandalism, and lack of maintenance monitoring.

Most lenders require property insurance to be in place from the date of the agreement through to settlement. The key is planning ahead and using specialist brokers who understand mortgagee sales.

Harcourts has specially designed mortgagee sale insurance policies available through our partner insurance brokers. These policies are structured to address the specific risks and challenges that standard insurers worry about. We can connect you with these brokers to get your cover arranged quickly.

Types of Insurance Cover You Need

• Building insurance: This covers the building structure, fixtures, and fittings. It's non-negotiable for your lender and for your own protection against loss or damage.
• Public liability insurance: If the property will be tenanted or used for business purposes, public liability cover protects you if someone is injured on the property and tries to claim against you.

Arranging Insurance: Step by Step

Follow these steps to get your insurance sorted before auction day:

1. Gather property details. You will need the address, property type (residential, investment, mixed), construction type, age (approximate), any known issues, and whether it is vacant. Have your building inspection and LIM report ready to share.
2. Approach a specialist broker. Contact specialist insurance brokers who have experience with mortgagee sale properties. They understand the unique challenges and can often arrange cover that standard insurers will not touch.
3. Get cover confirmed in writing. Do not rely on verbal quotes. Get a written quotation and confirmation of cover before auction day. Make sure you understand what is and is not covered, and any exclusions or conditions.
4. Have a certificate of currency ready. Once your insurance is confirmed, request a certificate of currency (a document proving the policy is in force). You may need to produce this at settlement.

Finance: Getting Your Loan Ready

Auction bidding means you are bidding unconditionally. There are no finance conditions. Your offer is binding whether or not your bank approves a loan after the fact. This is why pre-approval is absolutely essential for mortgagee sale auctions.

Pre-Approval is Non-Negotiable

Before you set foot in an auction room, you must have unconditional pre-approval from your lender. This means they have reviewed your income, expenses, credit history, and deposit funds, and they are willing to lend you the amount needed. Conditional pre-approval (where the bank reserves the right to pull out later) is not sufficient for an unconditional auction bid.

Get Pre-Approval Early

Contact your bank or a mortgage broker at least four to six weeks before you plan to bid at auction. Provide them with information about the property you are targeting so they can understand any risk factors and give you accurate pre-approval. If you have already found a specific property, even better: share the address so the lender can consider the specific risks of that property when setting conditions.

Talk to your broker about what banks typically require for mortgagee sales in your area. Some lenders specialise in these properties and have streamlined approval processes. Others are more conservative.

Practical Checklist: Before Auction Day

Frequently Asked Questions