Vendor finance

Hi Jenny

The level of regulation is quite extensive for the three most popular forms of vendor finance, i.e. Instalment Contracts, Deposit Finance and Lease/Options (Rent To Buy)

Instalment Contracts and Deposit Finance are credit contracts and are regulated by the National Credit Code (create by the National Consumer Credit Protection Act 2009).  All credit contracts must be setup under all the requirements of the National Credit Code, including the Code's Responsible Lending requirements. All Australian Credit Licence holders and Authorised Credit Representatives must be members of either the Credit Ombudsman Service Ltd or the Financial Ombudsman Service and it would be one of these Ombudsman services that you would work with, if you have a problem with your Instalment Contract or Deposit Finance arrangement.

Lease/Options (Rent To Owns).  The Lease part of a Lease/Option is regulated by the relevant State's Residential Tenancy Act.  There have been a number of Lease/Options that have been before various Residential Tenancy Tribunals and I can assure you these Tribunals do not hold back in their protection of the tenants involved.

Cheers,  Paul

In NSW see the standard contract for the sale of land. There will be a few special conditions added

Assuming you hold a Credit License or an Authorised Representative of someone else who does you need to comply with the NCCP legislation.

You are required to provide the Buyer with a copy of your Credit Guide, Credit Propsal Disclosure and then have them sign the Preliminary Assessment you have prepared and ensure that you can justify the reasons why the loan is not unsuitable and how you got to that conclusion.

Cheers

Yours in Finance

Thanks for the info. Love this site!

You possibly could. But this would be potentially dangerous for both parties so seek legal advice.

Disadvantage for the vendor is that he/she is giving someone an interest in the property, creating legally complex issues surrounding priorities. What if the vendor as legal owner died and left the property via a will to his son, the loan babysister would have to take legal action pretty quick to stake their claim and this could lead to a costly case in the Supreme Court.

Don’t really see it as a strategy at all!

Too risky and too many complex legal issues so high potential for disputes and therefore litigation.

I believe Dominique is more involved in strategies to assume properties and loans.

Also, mentioned above is the idea that you can do your own vendor finance legal paperwork.  You can but I strongly suggest you don't. Unlike the standard sale and conveyance of a property, that normally takes a few weeks to complete, a vendor finance sale is normally written up for between 5 to 30 years.  This leaves ample time for your buyer's situation to change, e.g. relationship breakdown and unemployment.

In situations of financial hardship, the tactic of claiming they didn't understand the legal paperwork is often used by buyers.  As a result the vendor financier's expertise in drawing up and explaining legal paperwork will be closely questioned and challenged by the buyer's advisors.  As you can imagine, such questioning is going to leave you looking like an amateur.

However, if a solicitor has drawn up the legal paperwork and your buyers have received independent legal advice from a solicitor, you can see that the vendor financier's position is much stronger.  It's unlikely that the buyer's solicitor is going to argue that s/he did not explain the Contract properly in the first place

Cheers,  Paul