Foreclosure: who pays when a mortgagee removes chattels from a house?

IF you have a mortgage over your house, and you do not repay your loan, the bank (as mortgagee) may sell your house to recover the money you owe. But what happens when someone else is living in the house, and you have left your things, such as furniture and other chattels, in the house? Who pays for the removal and storage? A recent court case looked at this scenario.

In this case, the borrowers owed money to FM Custodians, and gave a mortgage over their property as security for the loan. When the borrowers did not make their payments on time, FM Custodians applied to court for an order requiring the borrowers to vacate the property. Once granted, FM Custodians wrote to the borrowers, requiring them to leave the property and hand over the keys.

The borrowers ignored this request (and later similar requests) and eventually travelled to Europe, leaving a family friend living in the house. The borrowers also left their furniture and chattels behind.

FM Custodians sought, and received, a court order that allowed FM Custodians to take physical possession of the property.

Shortly before FM Custodians took physical possession, a removal firm (contracted by FM Custodians) removed the chattels from the property and put them into storage. The chattels were packed and wrapped, with an inventory of all items taken. FM Custodians notified the borrowers of this, and sent them the invoice of costs for payment. But the borrowers refused to pay.

The borrowers eventually provided an address for the chattels to be delivered to a year and ahalf after they were first removed. They still had not paid for the removal and storage costs, so FM Custodians filed a claim in the High Court to recover the money it had spent.

The judge in the High Court found that FM Custodians had the right to vacant possession, and acted reasonably in removing, storing and even insuring the chattels. FM Custodians had given sufficient notice, and was acting as an ‘‘involuntary bailee’’. FM Custodians was awarded just over $50,000, plus interest.

But the borrowers appealed the High Court judgement, which landed the dispute in the Court of Appeal this year. The borrowers advanced a legal argument around the specifics of trespass focusing on the fact the removal firm removed the chattels slightly before FM Custodians took physical possession. The borrowers’ lawyer suggested FM Custodians should have left the chattels where they were while the parties negotiated — until the property was eventually marketed for sale.

The Court of Appeal was unconvinced by this argument. The judges noted FM Custodians’ practical options were limited, but what it actually did was lawful and reasonable. The borrowers had plenty of notice and could have arranged for the chattels to be uplifted earlier — or could have cooperated in other ways. Leaving the chattels in place would have been impractical in the circumstances, so the court dismissed the appeal, and required the borrowers to pay FM Custodians legal costs on top of the $50,000 plus interest.

There are two key lessons here. If you are selling a house as a mortgagee sale, you still have to act reasonably when dealing with chattels left on the property, but you can probably recover removal costs.

And if a mortgagee is trying to sell your house, cooperation will generally work better than leaving your chattels to be removed by someone else if you want to avoid paying further costs.