Recently we heard from an experienced Vendor Financier regarding the frustration they’ve experienced around unscrupulous sellers (vendors) attempting to renege on vendor finance sales.

Why Would They Do It?

Our immediate reaction to that question is ‘greed’. We too have witnessed this appalling proof of what a few people will do when the ‘greed gland’ kicks in!

From our experience, these greed based manoeuvres usually occur when two factors are in place:

  1. The property is located in an area that’s had reasonable to good capital gain over the term of the vendor finance arrangement, and
  2. The vendor finance arrangement has been running long enough for the seller to see sufficient capital gain to go after, no matter what the cost to their character and reputation.

The Knock On Effects To Our Industry

While we’ve found such abhorrent behaviour to be rare, obviously it could easily be used against our Industry. Initially via a sensational media story, followed up with quoting such cases in Reviews into our Industry.

Suggestion to Consumer Affairs Victoria’s, ‘Consumer Property Law Review’

The FBAA’s Vendor Finance Committee provided the following suggestion to the Consumer Property Law Review, regarding this issue:

“A seller should not be able to profit from forcing a termination through their own errant actions. It is reasonable that if a seller is in breach of the contract, to the point where the breach cannot be remedied and termination of the contract is required, then certain remedies should be open to the purchaser including:

  • the purchaser is able to terminate the contract without being obliged to make payments for occupation; and
  • at the purchaser’s discretion:
    • the purchaser has the first right to refinance the property with a third party financier and pay out the seller, i.e. ‘complete’ the contract; or
    • the property should be sold at public auction and any funds received, over and above the Purchaser’s outstanding loan balance plus costs, is disbursed to the Purchaser. 

This remedy would enable a purchaser to derive the benefit from any appreciation in the property during the period of their occupation and simultaneously remove any incentive for the seller to trigger a breach.”

A full copy of the FBAA’s Review submission can be downloaded by CLICKING HERE.

There are more suggestions in the FBAA’s submission than you may be aware of. We’ll cover them in the coming weeks.

 

Client First – Always.

 

Cheers,

Paul