s 88(1), (2) the conditions
The conditions before enforcement
Section 88(1) opens with these:
“A credit provider must not begin enforcement proceedings against a debtor in relation to a credit contract unless:
“the debtor is in default under the credit contract; and
“the credit provider has given the debtor, and any guarantor, a default notice, complying with this section, allowing the debtor a period of at least 30 days from the date of the notice to remedy the default; and
“the default has not been remedied within that period”.
National Credit Code, section 88(1)Subsection (2) sets the same three conditions where the credit provider acts against a mortgagor under the mortgage: to recover money due, or to take possession of, sell, appoint a receiver for or foreclose on the mortgaged property. A person who is both debtor and mortgagor may be given the two notices in one document. Both subsections are offences of strict liability.
s 88 reverse mortgage
The conversation a reverse mortgage adds
For a reverse mortgage, section 88 asks for more than a letter. Among the conditions in subsection (1) is this one:
“if the credit contract is for a reverse mortgage, the credit provider has spoken to one of the following persons by telephone or in person in that period and has thus both confirmed that the debtor received the default notice and informed the person of the consequences of failure to remedy the default, or has made reasonable efforts to do so:”
National Credit Code, section 88(1)The Code lists three people: the debtor, “a practising lawyer representing the debtor”, and “a person with a power of attorney relating to the debtor’s financial affairs”. Subsection (2) has a matching condition where the mortgage secures a reverse mortgage: the credit provider must have spoken, by telephone or in person, to the mortgagor, a practising lawyer representing them or a person holding power of attorney over their financial affairs, confirming that the mortgagor received the notice and explaining what failing to remedy the default will lead to, or have made reasonable efforts to.
“That period” is the period the default notice allows for remedying the default.
s 88(3) contents
What every default notice must say
The notice, under section 88
“A default notice must contain a prominent heading at its top stating that it is a default notice and specify:
Among the matters the subsection then lists:
- “the default; and”
- “the action necessary to remedy the default; and”
- “a period for remedying the default; and”
- “the date after which enforcement proceedings in relation to the default, and, if relevant, repossession of mortgaged property may begin if the default has not been remedied; and”
- “that repossession and sale of mortgaged property may not extinguish the debtor’s liability; and”
- “that a subsequent default of the same kind that occurs during the period specified for remedying the original default may be the subject of enforcement proceedings without further notice if it is not remedied within the period; and”
- “any other information prescribed by the regulations.”
This is a selection, not the whole subsection: the full list of what a default notice must specify is in section 88(3) of the Code, on the Federal Register of Legislation.
s 93A(2) extra contents
Extra contents when the debt was larger
Section 93A applies where the reverse mortgage Subdivision of the Code applies, the borrower’s debt just before the lender received the payment or sale proceeds was more than the amount received, and one or more of the conditions in section 86E are met, as when the lender sells explains. Then, if section 88 calls for a default notice before proceedings to recover any of the excess, the lender may not start them until two things are done.
The notice must also specify
- “the amount received by the credit provider”;
- “the debtor’s accrued liability just before that amount was received”; and
- “the conditions in section 86E that are met”.
Section 93A(2)(a), National Credit Code.
And where the credit provider knows a practising lawyer is acting for the borrower or mortgagor, and gave the notice some other way than through that lawyer, it must have given the lawyer a copy “at the same time as, or as soon as practicable after” it gives the borrower the notice. The section carries a criminal penalty of 50 penalty units.
s 88(7A) barred events
A notice about a barred event
Section 18A bars a reverse mortgage contract from using certain events as a basis for enforcement, set out in what the contract must not include. Section 88(7A) closes the loop at the notice stage: “So far as a notice purporting to be a default notice relates to an alleged default under a credit contract for a reverse mortgage that is an event described in subsection 18A(3)”, it is not a default notice for the purposes of the provisions the subsection then lists. The Code adds: “To avoid doubt, subsection (7A) does not affect the status of the notice as a default notice for the purposes of section 89, 94 or 95.”
s 88(5), (6) exceptions
When no notice, or no wait, is needed
Subsection (5) says a credit provider need not give a default notice, or wait out the period in one, before beginning enforcement proceedings if:
- it reasonably believes the debtor or mortgagor induced it, by fraud, to enter into the credit contract or mortgage;
- it has made reasonable attempts to find the debtor or mortgagor, without success;
- the court authorises it to begin the proceedings; or
- it reasonably believes the debtor or mortgagor has removed or disposed of mortgaged goods without its permission, or intends to, or that urgent action is necessary to protect the mortgaged property.
Where the credit provider reasonably believes a default cannot be remedied, the notice need only specify the default, and proceedings may begin after 30 days from the date of the notice.
Help
Hardship, complaints and help
A note to section 88 points to more steps: where a debtor or guarantor has given a hardship notice or postponement request, further requirements may apply before enforcement proceedings begin, in sections 89A and 94.
Moneysmart names the Australian Financial Complaints Authority (AFCA) as an independent scheme for disputes with financial firms, and says financial counselling is free and confidential, from not-for-profit community organisations.