126.96.36.199 No negative equity guarantee (NNEG)
From 1 July 2022, participants in the HEAS (formerly the PLS) are protected by a no negative equity guarantee (NNEG), which ensures the amount owed on exit from the scheme will not exceed the market value of the properties used to secure the loan, less any non-HEAS encumbrances.
How the NNEG operates
When a person exits the HEAS (generally when the securing property is sold or upon their death), the Commonwealth calculates the 'adjusted value' of the property used to secure the loan. The adjusted value is the market value of the property less any non-HEAS charges or encumbrances such as a pre-existing mortgage.
If the person's total HEAS loan balance exceeds the adjusted value of the securing property, the adjusted value is recovered by the Commonwealth and the remaining debt is extinguished.
Note: In certain circumstances defined by social security law, the NNEG does not apply.
Example: John is a long time HEAS participant using his principal home as security for his loan. Over the time John receives HEAS payments, he accumulates a HEAS debt of $300,000. He still owes $200,000 on a mortgage for the property, which was in place before he entered the HEAS.
John passes away. Following a recent market correction, his home is valued at $450,000. The Commonwealth calculates an adjusted value of $250,000 ($450,000 − $200,000 mortgage).
None of the circumstances exist in which the NNEG does not apply.
Due to the NNEG, the Commonwealth recovers only $250,000 from John’s estate. The remaining HEAS debt of $50,000 is extinguished.
When does the NNEG not apply?
The NNEG does not apply in circumstances where:
- a non-HEAS charge or encumbrance on the securing property was created, or increased, after the person began receiving HEAS payments, and this interferes with the Commonwealth's ability to recover the HEAS debt, or
- the person engaged in fraud or misrepresentation regarding their participation in the HEAS.
Act reference: SSAct section 1144AA No negative equity guarantee