Mortgages tapped for unpaid rates | Canterbury News | Local News in Canterbury

Increasing numbers of Christchurch people are defaulting on their rates bills - forcing the city council to extract money from homeowners' mortgages.

Instances of the city council going to banks and recovering owed rates from a householder's mortgage have climbed since the global recession hit in late 2008.

In the past six months it has already issued 1200 notices to mortgages, equating to an estimated $1.8million.

This compares with 1486 notices in the 12 months to June 2009 and 980 the previous year.

A legal clause gives local authorities the right to force people's banks or finance companies to cover unpaid rates, which at worst can put mortgages into default, or force the sale of a home from under the owner's feet.

At the end of June last year it was owed $9.563m in unpaid fines, in 2008 $7.991m and in 2007 $5.552m

The average residential rates bill in Christchurch is $1264.

The city council sends letters to ratepayers as soon as they skip payments and then advises that the mortgagee will be contacted if a payment is not arranged.

By law it cannot try to take the debt out of rates defaulters' mortgages until November 1 of the following financial year.

Corporate support manager Chris Kerr said extracting debts from mortgages was a last resort.

"The council prefers to work with ratepayers who have arrears of rates or who are having difficulty paying their rates before they get into a position where mortgagees or debt collection companies are involved," he said.

If there is no mortgagee, debt collectors are hired by the city council to recover rates.

Amanda Douglas, a lawyer specialising in local government, said a clause in the Local Government (Rating) Act 2002 ensured city councils never lost out.

"The council has a number of options. One of them is to seek payment from the mortgage. Then they are entitled to recover it as a debt with legal proceedings," she said.

If a rates defaulter has no mortgage, the city council has the power to go to the High Court for an order to sell or lease the property to recover the rates. Mr Kerr said 98% of homeowners paid their rates on time and the city council only took legal proceedings as a final option. In other parts of New Zealand, Auckland City Council took $5.34m in unpaid rates out of 3840 mortgages (up from $1.86m out of 2205 mortgages in 2005/2006). Wellington City Council took $1.32m from 571 mortgages.