Last Updated: 22nd May, 2024

Losing a home is a distressing experience that can disrupt lives and uproot families. To prevent such a scenario, it’s crucial to understand the reasons behind home loss and the urgency to act swiftly. Various factors can lead to foreclosure, including financial hardships, job loss, medical expenses, excessive debt, or changes in interest rates. The key is to recognise the signs early on and take proactive measures to avoid reaching that tipping point. By doing so, you can regain control of your financial wellbeing and protect your home.

What Is Foreclosure?

Foreclosure is a legal process in which a lender repossesses a property from a homeowner due to their failure to make mortgage payments. The lender takes legal action to terminate the borrower’s rights to the property, typically resulting in its sale to recover the outstanding debt.   In Australia, foreclosure is sometimes referred to as “repossession” or “mortgagee in possession”. There are, in fact, slight differences between these terms. But they all refer to when a homeowner defaults on their mortgage payments, giving the lender (mortgagee) the right to take possession of the property, usually to sell it and recover the outstanding debt.

What Causes Foreclosure?

There are several reasons why a lender may become a mortgagee in possession. Some of the most common causes include:

Default on Mortgage Payments

This is the most common reason for a lender to become a mortgagee in possession. If a borrower fails to make their mortgage payments, the lender will eventually send them a default notice. If the borrower does not take action to bring their payments up to date, the lender can apply to the court for a possession order. Some reasons for borrowers defaulting on their loans can be:
  • Job loss or income reduction.
  • Unexpected medical expenses.
  • Negative equity
  • Variable interest rate increases.
  • Excessive debt


If a borrower files for bankruptcy, the lender may foreclose. This is because the bankruptcy trustee will sell the borrower’s assets to repay their creditors. The lender’s mortgage is typically one of the first assets to be sold, and the lender will become a MIP if the proceeds from the sale are not enough to repay the total amount of the mortgage.

Death Of The Borrower

If the borrower dies, the lender may foreclose if the borrower’s estate does not have enough assets to repay the mortgage. The lender will then be responsible for managing the property until it can be sold.


If a borrower becomes disabled and is unable to work, they may not be able to afford their mortgage payments. In this case, the lender may become a mortgagee in possession if the borrower’s disability insurance does not cover the full amount of the mortgage payments.

Steps Of Repossession

The process of a lender taking possession of property is as follows: