Through our recovery work, we are seeing first mortgagees commence enforcement before second mortgagees have acted, or move to take control of sales already being progressed by second mortgagees.

The commercial lesson is clear: waiting is a credit decision, with a cost that needs to be measured.

The first mortgagee’s recovery is not your recovery

A first mortgagee may remain comfortably covered while the equity supporting the second mortgage is steadily eroded. Its appetite for delay, additional expenditure or a different sale strategy may therefore differ significantly from yours.

Once the first mortgagee controls the sale, your influence over the agent, marketing campaign and timetable can disappear entirely. If work is repeated or the process restarts, additional costs and senior interest may further reduce the surplus available to repay you.

A property can sell for an apparently satisfactory price and still produce a disappointing second mortgage recovery.

A refinancing promise needs a commercial test

Another extension can feel reasonable, particularly where the borrower continues paying interest and says a refinance is imminent. But servicing payments do not necessarily preserve the equity supporting your loan.

The relevant question is whether waiting is likely to improve your net recovery.

That requires current figures: a realistic sale value, the senior payout, the scope of priority claims, anticipated costs and interest through to settlement. A proposed refinance or voluntary sale should be supported by evidence, achievable deadlines and a clear assessment of the consequences if it fails.

Accepting payments after maturity may provide cash flow, but it can also complicate recovery. Accepting interest after the principal falls due can trigger additional notice requirements before enforcement. Informal arrangements may also create disputes about whether the lender agreed to extend the loan or postpone enforcement, adding cost and delay while the equity supporting the second mortgage reduces.

Lenders should obtain advice before accepting further payments and document any agreed indulgence with clear deadlines and appropriate protections. The immediate benefit of receiving interest must be weighed against the potential cost of delaying recovery. 

Early action preserves options

Acting at the first default means reviewing the documents, assessing the recovery and starting the appropriate notice process promptly. Preparation can then continue while applicable notice periods run.

Early preparation also gives the second mortgagee a stronger commercial basis for seeking the first lender’s cooperation. A credible sale strategy, supported by valuation evidence and a realistic timetable, is more persuasive than an intention to enforce.

Guarantees and additional security should be assessed at the same time. Discovering a likely property shortfall late in the process leaves fewer options.

Protect the margin before it disappears

For second mortgage lenders, the decision to wait deserves the same discipline as the decision to lend.

What equity remains? How quickly is it reducing? What evidence supports the borrower’s proposed exit? What happens if the first mortgagee takes control?

The earlier those questions are answered, the greater the opportunity to protect the recovery.

If your loan is in default, contact Summer Lawyers early to assess the position and progress an appropriate recovery strategy.

DISCLAIMER: This article is current as at November 2026. It is general in nature and does not constitute legal advice. Specific advice should be obtained for your particular circumstances.