Mortgage Foreclosure : Rights & Responsiblities of a Mortgagee & Mortgagor

15 September 2025 in Banking and Finance | 7 min read | skip to FAQs

This article examines the process of foreclosure from both the mortgagor (borrower) and mortgagee (lender) perspectives, and their respective rights and responsibilities when a mortgagee takes possession of a mortgaged property.

What is Foreclosure?

If a mortgagor defaults on their mortgage payments, a mortgagee has numerous legal options to recover the debt, including, in certain circumstances, foreclosure. Foreclosure is the process of a mortgagee taking possession of a mortgaged property when the mortgagor is in default of the loan. Foreclosure requires formal procedures with safeguards provided to ensure fairness of the legal process for both parties. A mortgagee cannot simply take possession of a property or lock someone out of their home without following the required process and obtaining an order from the Court.

The Position of the Mortgagee

From the mortgagee’s perspective, where a mortgagor is in default foreclosure and sale is typically a last resort if resolution attempts have been unsuccessful. The process for foreclosure is as follows:

Missed loan repayment

If the mortgagor misses one or more loan repayments, the mortgagee should contact the mortgagor to urge them to pay the outstanding amount.

Notice of Default/Section 57 Notice

This notice must be sent to allow the lender to foreclose on the property. The notice must state that it is a notice pursuant to section 57 and provide the mortgagor with one month to rectify the default. This notice can be sent to the borrower anytime during or after 6 months of nonpayment.

It is important to note that the application cannot be made to the court until the expiry of the 6 month period of nonpayment.

These two procedural requirements, (section 57 notice and six months of default) must both have been satisfied prior to any application to the Court for foreclosure and ultimately a power of sale.

Court Proceedings

If no resolution has been reached and the mortgagor fails to make the payments, or remedy any other default, within the  time period specified in the section 57 notice, the mortgagee may begin Court proceedings. The mortgagee can seek an order for possession of the property and a judgement for the outstanding debt. Most foreclosure matters are heard in the Supreme Court, and the mortgagee must give the mortgagor notice that they have applied to the Supreme Court. The Court requires evidence of the six or more months of failed loan repayments and must be satisfied that the section 57 notice is compliant and has been served correctly, before determining whether ‘mortgagee in possession’ is declared. If the Court is satisfied and makes the orders sought by the mortgagee, the mortgagee will have the legal entitlement to possess, manage, lease or sell the property in order to recover the outstanding debt. The Court’s order will stipulate a date by which the mortgagor must vacate the property.

Enforcement of the Order

The order will typically give the mortgagor four weeks’ notice to vacate the property before the mortgagee, sheriff and locksmith can repossess the property. If the mortgagor has vacated the property, the mortgagee has the right to change the locks and take physical possession. However, if the mortgagor has not vacated the property by the specified date, the mortgagor can seek a writ of possession for the possession of land. The writ provides the authority for the sheriff to enforce the writ of possession and carry out the eviction. This ensures that the process is done lawfully. The mortgagee does not have the authority to carry out this eviction, whether by force or by changing the locks on the property.

The Position of the Mortgagor

Reaching an Agreement

In the event that a mortgagor is in default of a mortgage, we encourage any mortgagor to engage with the mortgagee as early as possible to reach an agreement prior to any Court proceedings. This can arise during periods of cash flow disruption caused by for example, family law proceedings or business interruption and during such periods it is important that the mortgagor communicate with the mortgagee in an attempt to agree alternate payment arrangements. This can include new payment plans or a restructuring of the loan. Reaching an agreement can prevent the proceedings from reaching the Court. Seeking legal advice may assist with mediation if the lender is unwilling to negotiate.

Right to be Heard

If an agreement is not reached and the matter is taken to Court for resolution, the mortgagor has the right to appear in Court. The mortgagor can dispute the claim, submit a postponement request, or seek extra time to make the repayments. This extra time may be granted if the mortgagor can prove their genuine effort to make the repayments and the prospect of future improvements in the mortgagor’s financial circumstances. Additionally, Courts will consider any current hardship the mortgagor is facing which can include illness or unemployment.

Responsibility of the mortgagor

It is the responsibility of the mortgagor to vacate the property if the Court orders the repossession of the property. If the mortgagor has not vacated the property by the required date, the sheriff has the authority to carry out this eviction by force. In the unlikely event that the mortgagee attempts to unlawfully carry out this eviction as opposed to the sheriff, the mortgagor is encouraged to seek urgent legal advice.

Key Takeaways

There is a formal and strict legal process for the foreclosure of a property. The most important points are that a lender is unable to apply to the Courts to foreclose on a property until at least 6 months of nonpayment have occurred and the lenders have complied with Section 57 of the Real Property Act. This includes the lender providing the borrower at least 30 days to pay the debt.

1. The lender (mortgagee) notifies the borrower if there are missed mortgage payments.
2. The mortgagee can serve a Default or Section 57 Notice on the mortgagor at anytime. However, it is usually after 6 months of missed payment. It is called a Section 57 notice because it relates to section 57 of the Real Property Act.
3. The Section 57 notice must provider the borrower at least 30 days to pay the debt.
4. If mortgage payments are not paid for 6 months or more and a Section 57 notice has been issued, the mortgagee has the right take the matter to Court for an order of possession and judgement of outstanding debt.
5. The mortgagor has the right to be heard before the Court, to dispute the claims or provide reasonings as to why the payments have not been made.
6. If the order for possession is granted to the mortgagee, the mortgagor must vacate the property by the date specified by the Court.
7. If the mortgagor does not vacate the property by this required date, the mortgagee does not have the authority to evict them. This authority lies with the sheriff, once a writ of possession is granted by the Court.

How can BSM Sydney Lawyers assist you?

The experienced banking and finance lawyers at Brander Smith McKnight Lawyer Sydney are experienced in all aspects of foreclosure. We represent both mortgagees and mortgagors. Our lawyers are powerful court advocates and will reduce the stress of potential foreclosure by representing you in court. Our senior finance lawyers offer a free 20 minute consultation to discuss your individual matter and potential solutions.

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BSM Lawyer Sydney has offices conveniently located in Sydney CBD, Sutherland, Parramatta, Shellharbour and Wollongong.