With the arrival of the National Credit Code (NCC) in 2010 most vendor financiers have become conscious of qualifying their prospective buyers a whole lot more than they used to. While the NCC only regulates credit contracts it seems to have had a beneficial flow-on effect, industry wide. However how well do you check your Sellers?
When a traditional real estate sale takes place, the Title normally transfers to the new owner shortly after the completion (settlement) date.
However our vendor finance sales generally see the Title transfer a number of years after the new owners/occupiers take possession. For example:
• Instalments (Terms) Contracts – usually the Title would transfer to the new owners a number of years after possession but the Contract usually allows the buyer to ‘settle’ as early as they wish.
• Rent To Buy – much the same as Instalment Contract, in that the tenant buyer can exercise the Option at any time and thereby complete the sale.
• Deposit Finance – very similar to a traditional sale, in that the Title transfers shortly after the establishment of the first mortgage.
• Deposit Builder – usually the Title will transfer just after the ‘settlement’ date nominated in the Contract. However it is possible that the Contract may allow early ‘settlement’.
Free & Clear Title
In three of the four VF techniques mentioned above, it’s possible that the seller may be required to complete the sale earlier than the date nominated on the legal paperwork.
What this means is that, in three of these four techniques, the seller has to be in a position to provide free and clear Title to the buyer, pretty much at any point after the legal paperwork for the transaction comes into being.
Relying On Your Seller
If you are ‘standing in the middle’, i.e. assisting a Seller to sell their property with vendor finance, you’re relying on the Seller’s ability to provide free and clear Title as required, to fulfil your end of the bargain with the Buyer.
When we came to this realisation it became clear to us that we needed a good picture of our Sellers’ overall financial position in order to protect our business reputation.
An Email To Catch Your Sellers’ Attention
Once we have settled on the ‘numbers’ and agreed to undertake what we call our Negative2Positive technique, we send our prospective Sellers the following email:
To get started I need to check you out. That may sound a bit weird but I’m going to be marketing the property to a VF buyer and I need to be able to assure the buyer everything is as it should be. With a vendor finance sale we have to be in a position to transfer the property into the VF buyer’s name at any time they are able to pay us out.
A request to pay us out at any time means we have to be assured we can payout the underlying loan and be in a position to transfer title. Therefore to get marketing I need:
1. A copy of your Driver’s Licence
2. A copy of the last Council Rates notice for the property
3. A copy of your last two loan statement for the property
4. A copy of your Credit Report. Please get this from http://www.mycreditfile.com.au/personal/ and forward it to me when it arrives. If you pay the $49.95 it normally arrives the next day
5. A signed copy of the attached JV Agreement. Please read through the attached JV Agreement and, if it’s all ok with you, please authorise the agreement on the last page and fax (02 4910 9042) or scan/email it back to me. With that done, please post the original to me at 26 Garuwa St, Fingal Bay, NSW 2315. I will sign it and send a copy back.
I look forward to your questions.
It’s a bit ‘out there’ but it gets the result we want.