Banks are facing a customer revolt as disputes over mortgagee sales reach record levels.
The frustration from customers is being heard in the courts and by banking ombudsman Deborah Battell as homeowners complain they are being left with debt from quick-fire sales.
Recent cases include a couple whose retirement plans were devastated by the mortgagee sale of their home and three investment apartments.
The four properties had been valued at $2.1 million but fetched $1.5 million. The couple were then sued for another $350,000 - and then pursued for the bank's $40,000 legal fees.
Ms Battell said complaints about mortgage finance had almost doubled since before the financial crisis.
In 2011, Ms Battell's investigation team had looked into 118 cases which banks had been unable to resolve. The number was almost double the 2007 figure and was now 40 per cent of the investigation workload.
"It is people who have been suffering incredibly distressing situations. Their stress has been going on for some time. In many cases people are losing everything."
The complaints are a bubble of frustration which come at a time when the actual numbers of mortgagee sales appear to be dropping. Statistics from realestate.co.nz show the number of listings has dropped from a peak of about 420 in 2008 to about 230 now.
Ms Battell said the rise in complaints could reflect a lag between when people lost their homes and when they took action over it.
"People are definitely looking for a fair hearing. Very often people will feel it hasn't been handled properly."
She said relationships with customers at the point of mortgagee sale required "very skilled people".
"It is very difficult trying to communicate effectively with people in deep distress."
Customers wanted to know if they had been treated properly by banks, Ms Battell said, however banks knew the law around mortgagee sales and it was "rare" to find problems.
Customers often found matters unfair which were lawful, she said. Those included banks selling properties quickly even though they got prices below valuation. Also in the rules was banks suing former owners after the sale to get the rest of the money owed.
Banks were also entitled to add to the debt the default fee for ending a mortgage early - even when it ended because of a mortgagee sale.
Labour Party consumer rights spokeswoman Lianne Dalziel said the rise in complaints could indicate a problem with the law, which she planned to investigate. "I don't think the set of rules around this is very fair. It raises concerns and I will be following up."
New Zealand Property Investors' Federation president Andrew King said prices for mortgagee sales often reflected poor advertising and quick sales. "The banks want to get their money back. They don't want an extensive advertising campaign."
He said the sales were known among investors as good places to pick up cheap properties. The lower price came with the risk they were bought at auction without being viewed first.
Banks did not take the decision to foreclose on a mortgage lightly, Mr King said. It often came after extensive work with a home owner.
High numbers of mortgagee sales had been driven by so-called "mentors" selling property investment courses. "They are pushing properties and pushing education and charging huge amounts of money to do it."
He was aware of $25,000 charged for short courses by "mentors" who were also now bankrupt.
Mortgage broker Steve McGowan said homes sold at mortgagee auction sold about 20 per cent below the market value. Mr McGowan, who specialises in refinancing collapsing mortgages, said owners could not deal with being unable to pay their mortgage.
"They are very vulnerable, very confused, very desperate and understanding in some cases they have caused the problem because they haven't paid their mortgage."
They avoided lawyers because of cost and their bankers because they did not have the cash, he said. It led go a breakdown in communication between customer and bank.
"The banks need to think about this a little bit more. Maybe be a little more sympathetic rather than policy, policy, policy."
HIGH PRICE TO PAY AS DREAM MOVE TO NZ TURNS TO NIGHTMARE
In John Lamb's mind, there is no doubt he could have saved his retirement.
He says the three houses he and wife Leslie lost in a mortgagee sale could have fetched a better price and saved their family home from the same fate.
A year on from the sale, Mr Lamb says the proof is as clear as a drive down Georgia Terrace in Auckland's Albany.
"There's one selling in the street for $425,000 and they sold mine for $300,000."
The High Court at Auckland disagreed. Justice Edwin Wylie said he had "sympathy" for the Lambs but they had no defence to the $346,000 they owed Westpac.
The debt was still remaining after the mortgagee sale. The Lambs weren't arguing it. Instead, they said they shouldn't have to pay because Westpac didn't get the best price for their properties.
If they had, they argued, there would be nothing left owing.
"I'm in the middle of a jungle. They're coming after me," says Mr Lamb, who expects to be made insolvent. "The man in the street is gasping for air."
The sales came almost two years after Mr Lamb lost his job. "How would I pay my mortgage if I didn't have a job?"
The property portfolio went for 73 per cent of valuation. The Lamb family home was sold for $600,000 against a valuation of $780,000.
Mr Lamb, originally from South Africa, says the experience has soured the family's decision to move to New Zealand. His adult children have left to work in the Middle East. He would like to leave - but won't be allowed to travel as a bankrupt. "It makes me totally sick about your country."
The judgment records the Lambs' accusation that Westpac sold the properties too cheaply. They told the court it was not marketed properly and was dealt with by specialist mortgagee sales agents who had about 40 other properties to sell.
"What salesman can handle selling that many houses?" Mr Lamb asks.
But it also shows the bank repeatedly tried to work with the couple to sell the properties before taking over the process. It advertised them for 11 weeks before they were sold at auction.
A Westpac spokesman said going to a mortgagee sale was the last resort. He said the bank tried to work with the customer to find ways to avoid the sale and urged those facing difficulties to let their lender know.
"In all mortgagee sales, the bank makes every effort to obtain the best possible price."