Experience has shown us there are 3 main reasons your vendor finance buyers get into trouble:

  1. Unemployment
  2. Relationship breakdown
  3. Serially bad tenants that ‘target’ inexperienced vendor financiers because they’re barred from the rental market.

Unemployment and Relationship Breakdown

You can have the best available Application and Qualification processes in place to vet your prospective buyers but unemployment and relationship breakdown can strike unexpectedly at any time.

We find the ‘Chat and a Cheque’ technique has a great success rate in these situations.  Most buyers understand these situations put them in a position where they can no longer afford the property.  Often they’re not moving out because they have no money to pay for the move.  A heart to heart talk with them, along with an offer to financially help with their move, will very often get you the result you’re looking for.

A few thousand dollars help now, via a ‘Chat and a Cheque’ arrangement, can save holding costs and lawyer fees that can easily run to a much higher amount.

The Exceptions

Of course there are always going to be exceptions and it’s these types, who will insist that it’s all your fault.  These ‘exceptions’ and the serially bad tenant group mentioned above, will dig in and take advantage of all the legal assistance they can get and drag out complaints to Ombudsman services to the max.

They have two favourite areas to challenge.  Let’s see how to best cover these potential weak spots.

False and Misleading Advertising

Claiming your advertising is false and misleading is a favourite opening challenge from the other side.  This area is regulated by the Australian Consumer Law legislation.  It’s tough legislation as can be seen by a couple of recent incidents:

  • A bureaucrat contending that Rent To Own is false and misleading but commenting that Rent To Buy is probably ok
  • A lawyer in a recent court case, challenging ‘** Buy Houses’ as a header in a classified ad as false and misleading.  The argument put was that it was false and misleading because the entity responsible for the ad, did not have available funds to actually ‘buy’ a property. (The ‘**’ was inserted for anonymity)

A Quick Fix For Your Advertising

When setting up your advertising go over it with a fine tooth comb, looking for potential target areas, i.e. areas someone could contend are false and misleading.  You can see how ‘particular’ some people are regarding what is and what isn’t ‘false and misleading’, so we suggest you be pretty conservative.

‘It Wasn’t Explained To Me Properly’ and/or ‘I Didn’t Understand’

There is absolutely no doubt in our minds that this target area can be greatly reduced by getting your buyer to get independent legal advice regarding the legal paperwork.

Another recent court case made it clear that it’s also very important to start your file on a prospective buyer as soon as possible.  If the first thing you send out to your prospects is an Information Sheet outlining how the transaction works, make sure you get the prospects to sign and date it and send it back to you.

Thanks to Lewis O’Brien, of Lewis O’Brien & Associates, we’re able to make available Lewis’ ‘Letter of Intent’ (or Heads of Agreement) that fits perfectly as the next piece of paperwork you give to your prospects.  Of course, make sure you receive a signed and dated copy.

By insisting your buyers get independent legal advice and by getting both documents signed and dated by your prospects, you’re building a strong picture of a very open, fully disclosed transaction.  That is you’re making yourself a much smaller target.

Conveyancers Won’t Like This

Just this week we heard from a vendor financier who’s currently in a negotiation via one of the Ombudsman services.  The vendor financier had insisted her buyers get independent advice and the buyers chose to get this advice from a Conveyancer.  Just this week an employee of the Ombudsman service involved, verbally mentioned to the vendor financier that Conveyancers aren’t qualified to give legal advice regarding Instalment Contracts.  Somehow I don’t think the Conveyancers’ Association is going to be too impressed with that comment 😉

Don’t Be Put Off

If you’re new to Vendor Finance don’t let the above put you off.  What we’re talking about here is a rarity and it is a rarity because the Vendor Finance industry is becoming so much more professional. Talk to your mentors and check out the Vendor Finance Institute website for more information and easy to use industry tools.

 

Cheers,

Paul