Finance firm destroys contents of mortgagee sale home, reaches secret financial settlement with owners

Finance firm destroys contents of mortgagee sale home, reaches secret financial settlement with owners

Fashion designer Nichola Keast sued a finance company for $350,000 after it put her property’s contents into storage then had all her belongings destroyed. Photo / Dean Purcell

A finance company which won vacant possession of an Auckland couple’s home after a repayment dispute put the entire contents into storage ahead of a mortgagee sale, then had them destroyed without the owners’ permission.

Nichola Keast and Stephen Penney sued First Mortgage Custodians (FMC) and First Mortgage Managers (FMM) for nearly $350,000, claiming their lost contents included valuable furniture and tools and items of huge sentimental value, including Keast’s mother’s wedding dress and family photos.

Though FMC was within its rights as mortgagee to store the contents and sell the property, a High Court judge found there were questions about whether it could legally dispose of the couple’s personal belongings.

In what’s thought to be the first case of its kind in New Zealand, the couple sought damages from FMC, claiming it had breached its duty of care and was liable for their losses by unlawfully destroying items it did not own.

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The case had been dragging its way through the courts for several years until FMC and FMM reached a confidential financial settlement with the couple last month ahead of the matter going to trial, meaning civil action against the companies is now at an end.

However the couple are also suing Auckland Council for millions of dollars in a related case.

They claim unreasonable delays issuing a code compliance certificate (CCC) for an apartment development on another property Keast owned in McLeod Rd, Te Atatū, triggered a series of events that left them unable to refinance their mortgage arrangements with FMC in 2018.

They say this led to FMC foreclosing on their clifftop Waiuku property, where they had planned to build their dream home and retire.

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“They mucked as around and mucked us around,” Keast, a fashion designer, told the Herald.

“I haven’t had all of my property returned and I’ve never had an apology for that.”

Finance firm destroys contents of mortgagee sale home, reaches secret financial settlement with owners
The view from Nichola Keast’s former property in Big Bay, Waiuku, which was sold by mortgagee auction in 2018 by funder First Mortgage Custodians. Photo / Nicholas Keast

Keast filed proceedings in 2020. She told the Herald she and Penney were seeking up to $7 million in damages from Auckland Council for its handling of their resource consent applications and the ongoing fallout on their lives.

The CCC was eventually issued in 2019 – three years since they’d applied for it – after the couple sought a determination from the Ministry of Business, Innovation and Employment (MBIE).

A draft MBIE determination reversed the council’s decision to withhold the CCC. But a final version upheld the council’s decision, subject to the couple rectifying issues with a firewall and building maintenance, which Keast says was completed within a weekend.

An expert opinion by former council officer Eddy Saul, hired in support of Keast’s legal case, claims the council acted “in contempt of the requirements of the Building Act”.

“The overall performance of the [Auckland Council] in relation to this consent appears arrogant, overbearing, bullying and pusillanimous,” Saul wrote.

“As a former City Council officer, I am embarrassed by both their attitude and their performance.”

The wedding dress warn by Nichola Keast's mother in 1959 was among personal belongings destroyed when her Waiuku home was sold by mortgagee auction in 2018. Pictured is Helen Keast (nee Soper) with her father George Soper. Photo / Nichola Keast
The wedding dress warn by Nichola Keast’s mother in 1959 was among personal belongings destroyed when her Waiuku home was sold by mortgagee auction in 2018. Pictured is Helen Keast (nee Soper) with her father George Soper. Photo / Nichola Keast

The case against the council is ongoing, with a partner at law firm D.L.A. Piper being brought in to defend the council’s position.

Fighting back tears, Keast said the saga had been incredibly stressful and all-consuming.

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The settlement with FMC was a victory, though she would have liked her day in court.

“The main object is to make sure that this does not happen again. I don’t want anyone else to go through this, not only by the council’s actions but through the actions of secondary lenders,” Keast said.

“What happened to me is not fair and reasonable and the law is meant to be there to uphold these principles. I am concerned that others may have to go through similar soul-destroying experiences.”

‘I’ll just leave it in storage’

Court documents obtained by the Herald show Keast took a $1.2m mortgage with FMC in 2015 over the Te Atatū and Waiuku properties. After a default on the mortgage, FMC sold the Waiuku property by mortgagee auction in 2018 for $340,000 – well below its then capital value.

Keast claims the default was immediately remedied and only occurred because she had been forced to pay high second-tier interest rates because the Te Atatū property couldn’t be refinanced with standard lenders without a CCC.

A 2021 decision by Associate Judge Roger Bell says the couple left their household contents in the Waiuku home when FMC took possession of the property as mortgagee in December 2017. FMC then moved the belongings into storage after sending warning letters asking Keast to collect them.

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“While the contents were in storage, [FMC] also asked Ms Keast to uplift these goods. Later the mortgagees had the belongings destroyed.”

The couple argued they weren’t given the chance to remove their belongings themselves because FMC served a trespass notice on them, and they hadn’t consented to the chattels being disposed of.

The couple jointly sued Crown Worldwide (NZ) who removed the chattels and held them in storage. But Judge Bell later ruled the company had been acting on FMC’s instructions and was not liable.

FMC argued it was within its rights to remove the items and later destroy them after giving Keast “clear warnings”.

But Judge Bell said he was “not satisfied” FMC had a legal basis to destroy the chattels. He described this as a “new question in New Zealand”, which should be “fully examined” at trial.

Fashion designer Nichola Keast is suing Auckland Council for millions of dollars due to consenting issues relating to her Te Atatu townhouse development. Photo / Dean Purcell
Fashion designer Nichola Keast is suing Auckland Council for millions of dollars due to consenting issues relating to her Te Atatu townhouse development. Photo / Dean Purcell

Asked why she did not collect her belongings, Keast told the Herald both her parents had died in the months leading up to the Waiuku home’s repossession. She was also dealing with the CCC saga and had been hopeful of securing finance from another lender to prevent the mortgagee sale.

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“It just became too hard. I thought, ‘Okay, I’ll just leave it in storage because at least it will be safe’. There was no reason for them to destroy it.”

First Mortgage Trust chief executive Paul Bendall said: “At all times throughout this loan we have followed professional advice and have worked hard to resolve this through ongoing communication with those involved. We have now settled and resolved this matter privately, without an admission of liability.”

Auckland Council’s acting associate general counsel for litigation and dispute resolution, Sarah Hann, said the council was defending the couple’s claim and expected it to be set down for trial this year.

“As this matter is currently before the court, it is not appropriate for the council to make any further comment,” Hann said.