Hi all!
First of all, fantastic job on the books Steve, I have the original and revised editions and they are fantastic.
My question however is unrelated to that great advice in a way. Myself and close to 100 others were sucked into a fraudulent mortgage reduction scheme back in 2005, which is just now playing out in the supreme courts and ASIC. I will spare the long winded explanation for now, but the issue that I have is as a result I am lumped with an investment property in my name with a mortgage of $360K, but with a market value of $290K tops.
My research on prices back then show that it was bought around $100K above market value, just another piece in the fraud puzzle. I am self employed after a bout of cancer, and my wife works part time while raising 2 kids, but it is only a matter of a months before the mortgage will not be able to be paid and we head down the foreclosure road.
My question is this, who do I see for advice on this situation? We have not interest in keeping the property, it is a dud in every sense in investment terms, and was not something we chose voluntarily, but we also wan’t to make the best of a bad situation. A year a go I sold my PPR just to stave off the creditors and got some advice from some “financial planners”, but I am not sure they were the people that I really should have seen as the advice was extremely general and very little solutions or ideas offered.
Naturally with 4.5K+ a month just in accommodation costs (mortgage + rent), this can’t go on for much longer. I have read things regarding short sales, vendor financing etc. but short of Bankruptcy I am not sure of my options as I can’t pretend to be (property) educated enough to move things forward on my own.
If someone has some ideas on what type of professional would be the best to see (i.e. accountant, financial planner, property lawyer etc. etc.) that would really be of help as I am at a complete loss.
I look forward to working my way out of this and getting back to moving forward and posting on more positive matters.
Cheers
AdamP.S. No this was definitely not done with any of Steve’s principals
.. way before I head read his books unfortunately.Adam
Just a few thoughts off the top of my head.You guys couldn’t possibly move into the IP?
Declare bankrupt? (walk away)
Talk to the bank to negotiate some payment plan?
Get your solicitor involved?
Legal Aid?Good luck mate
JohnnyA dud investment is just that. Your best bet may well be debt reduction. Bite the bullet & sell at market value, wear the shortfall & pay it off asap. Your accountant would be able to advise if the debt would continue to be tax deductible.
The upside is that the capital loss can be carried forward & offset against future capital gains.
Remember that you do need to undertake due diligence to ensure you don’t buy a dud again.
PS YOU haven’t inherited the property it was just a bad investment on your part.
Scott No Mates wrote:A dud investment is just that. Your best bet may well be debt reduction. Bite the bullet & sell at market value, wear the shortfall & pay it off asap. Your accountant would be able to advise if the debt would continue to be tax deductible.The upside is that the capital loss can be carried forward & offset against future capital gains.
Remember that you do need to undertake due diligence to ensure you don’t buy a dud again.
PS YOU haven’t inherited the property it was just a bad investment on your part.
Hi Scott,
Thanks for the honest advice mate. You are right inherit is the wrong description (in fact changed the subject line), in the end it comes back to your own decision, so I will accept that.
Selling at market value and paying off the shortfall is a big possibility, what seems to be impossible is getting answers from my lender on how that procedure goes, and if they will even allow a short sale.
Reading between the lines, from your advice, an accountant perhaps is the professional to see should we go down that road?
Johnny1974 wrote:Adam
Just a few thoughts off the top of my head.
You guys couldn’t possibly move into the IP?
Declare bankrupt? (walk away)
Talk to the bank to negotiate some payment plan?
Get your solicitor involved?
Legal Aid?
Good luck mate
JohnnyThanks Johnny, moving into the IP won’t work as it take us to another state and away from established clients, jobs etc. plus the financial gain we get after we lose the rental income vs loss of income short term etc is not really worth it (not to mention possible tax benefits). The bank is being …. well a bank …. and communication with them on this is proving difficult as they are in some part wrapped up in the legal proceding themselves. Your other options are worth thinking about, bankruptcy has it’s attractions, but of course just as much down side as well, but is always there as a last resort.
you may need to see a specialized accountant like a receiver/administration type who could advise more specifically.
Seek out an alternative lender – maybe a personal loan.
The bank must have full valuation ordered on the property prior to lending ?
How can u borrow 360k with 290k valuation? who inflate the price?
god_of_money wrote:The bank must have full valuation ordered on the property prior to lending ?How can u borrow 360k with 290k valuation? who inflate the price?
The exact question I had for them, and to this day have not got an answer. At the time there were some shonky valuers tied up in QLD property scams, but no proof it had anything to do with them at this stage. Best guess is agents in co-hoots with valuers, as some prosecutions on unrelated deals have proven. True we were naive to get in this thing in the first place, but bigger people than us got screwed over by these guys as well.
That said, I don’t expect solutions here, just ideas on what practitioner to see, I’m not even going to pretend I can get myself out of this mess without some pro help.
Thanks Scott No Mates for the idea on the accountant type. The personal loan or refinancing option we have tried when this originally happened, but with such a shocking LVR on the current loan, we look (and probably are) like terrible risk options to lenders. At least that is what the brokers are coming back to us with.
that’s why I’m suggesting an unsecured personal loan to cover the bank’s shortfall after you sell.
Who did you go for the lender?
I am sure that the banks will get their own valuer to do valuation of the property…Hi Adam
This may be an alternative for you. Lets assume you have a $360,000, interest only, loan at 7.5%. This gives you a monthly payment of $2,250 per week.
I expect you could sell the property with vendor finance for $320,00, with a $10,000 deposit, at 9.5%, over 30 years. This would give you a monthly income of $2,606 per month.
This income must be poored, without exception, into the $360,000.
The vendor finance contract used to sell the property must have a 5 year, "lock out clause", i.e. a clause to lock out any refinance, within the first 5 years of the loan.
If you do the math, you'll be surprised at how close your $360,000 loan will come to $320,000 after doing this for five years.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Scott No Mates wrote:that's why I'm suggesting an unsecured personal loan to cover the bank's shortfall after you sell.Yeah definitely an option, although with how the books look, getting approved for the size of loan needed could be a concern, but worth looking into for sure.
god_of_money wrote:Who did you go for the lender? I am sure that the banks will get their own valuer to do valuation of the property…The loan was done through a lender (now) called Advantedge, so a second tier lender, at the time they were trading by another name of Challenger but changed right around the time this whole mess started. I will try to track down the SMH article about this whole drama.
PaulDobson wrote:Hi Adam This may be an alternative for you. Lets assume you have a $360,000, interest only, loan at 7.5%. This gives you a monthly payment of $2,250 per week. I expect you could sell the property with vendor finance for $320,00, with a $10,000 deposit, at 9.5%, over 30 years. This would give you a monthly income of $2,606 per month. This income must be poored, without exception, into the $360,000. The vendor finance contract used to sell the property must have a 5 year, "lock out clause", i.e. a clause to lock out any refinance, within the first 5 years of the loan. If you do the math, you'll be surprised at how close your $360,000 loan will come to $320,000 after doing this for five years. Cheers, PaulPaul, thanks kindly for the advice regarding the Vendor finance arrangement. It is something I went a long way down the road with originally a year or so ago, but the wife got scared off mainly due to lack of trust in the unknown (considering that was a part of what got us into the mess in the first place). Your arrangement idea sounds logical, I just wonder on the available market for 5 year lock out clause deal? It seems you run a business specialising in this kind of thing, where are you based Paul? PM me of course if you wish to keep that private.
Hi Adam
We're based in Port Stephens, NSW.
Selling a property with vendor finance means you are selling into a market that's very different from selling to traditional buyers, i.e. traditional buyers can usually get a home loan. For whatever reason, people who buy with vendor finance can't get a traditional loan and, on the whole, they're pretty annoyed at not being able to buy their own home, They know they'll pay a premium price for a VF property and they are more interested in the opportunity to get into their own home, than they are in the finer points of the property and any limitations in the finance.
We insist that all our buyers get independent legal advice and if the 5 year lock-out clause does not suit them, they will not go ahead. My experience says they will not worry about this at all.
Vendor Finance in residential real estate was the norm, until the banks started lending on resdential blocks of land in the 80's. A good place to find out how long vendor finance has been around is:
http://www.negative2positive.com.au/index.php?option=com_content&view=article&id=50&Itemid=75Also, the government regards a sale via a VF Instalment Contract as a real sale because they pay the FHOG to eligible purchasers buying their first home this way.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Hi Adam,
I'm sorry to read your account of financial deception. It's difficult to imagine the emotional journey you've been through, and are going through.
Sadly, I can't see an easy way out. If you sell for less than the mortgage value, you will need to arrange a loan with the lender to cover the shortfall. Assuming there is no other security to offer, the best you can hope for is a personal loan.
If you can, give me a call in the office during business hours and let's have a quick chat. 03 8892 3800.
– Stev
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Bankruptcy is possibly a good solution. You should speak to your lawyer about this asap.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Paul, Steve and Terry and thanks for your replies.
We have been having a good think about it over the weekend, and everyone’s replies were a great help, and your replies pretty much sum up where we see our options.
1. Personal loan to cover the shortfall: This is a definite option, however I am not so sure we would be very loan worthy considering this bad investment puts us at a negative LVR and struggling to meet repayments. To me this sounds too many warning bells for a prospective lender. It is something I am pushing the lender we have to property with to see if it is an option with them, but as with all things, it takes time.
2. Vendor finance arrangement: On paper, the best option financially if all goes to plan, but of course the key is finding the right type of buyer who would agree to the very specific terms that would be needed to make it work for us. Something Paul, I might give you a call on to bang heads if you don’t mind and see if it is something your business could help out with.
3. Bankruptcy: Initially it seemed the way to go, but the thought of such a long stretch where we make it very difficult to further our financial situation puts us off. Latest from the court cases has the group worried about tax implications, should that spring up, that would probably tip things over and bring bankruptcy right into play.
Finally I found the Sydney Morning Herald article on what we got caught up in, have a read if you wish which might give you more of an idea on the background:
http://www.smh.com.au/business/tax-haven-that-turned-into-a-7m-hell-for-100-20100620-ypd2.html
While this article focusses more on the shelf company aspect, you will see mention of our type of property in the bottom half of the article. I guess we were “lucky” to only be lumped with this over-valued property as we refused to sign anything regarding shares (thank goodness!!). I know so many out of the 100 who’s health has really suffered from the ordeal, we should be thankful we have ours.
Hi Akuma.
I am a lawyer and would suggest, based on the information you have provided, that you must speak to a lawyer. Your situation sounds complicated but with the courts and ASIC already involved I am under the impression that the company in question dealt fraudulantly with you? Under the Corporations Act 2007 and the Criminal Code (Cth), no company is allowed to profit from fraudulant dealings and you would have recourse through the courts and legal system should this be the case. You also may have civil claims for Tort breaches.
Try and find a lawyer who will give you a free 1st interview or simply ask for one. Most good lawyers are prepared to give you the 1st half hour for free. Should you have any problems then you could contact a mate of mine, Anthony, at http://www.legalandfinance.com.au who should be able to steer you in the right direction. Just tell him TC from SA sent you – he'll understand.
I hope this is of benefit to you.
CHEERS!
TCTC62 wrote:You also may have civil claims for Tort breaches.Hi TC,
Thanks a bunch for the suggestion, it is something we should address further, as Steve above mentioned, the emotional journey it took us through over the past year or so made it hard to imagine a trip through the courts, but, with a fresher state of mind now it is something that is worth investigating.
Excuse my ignorance, but what is Tort breaches? Thanks for the referral to Anthony, I will give him a buzz and let him know TC from SA (South Australia?) called
… is there a secret handshake? In all seriousness thanks.Hi again Akuma.
Tort breaches is the Civil equivilant of a Crime. In other words, let's take the Tort of Negligence: whereby a crime as defined under the Criminal Code has not taken place but, rather, a Civil crime or tort, whereby due to ther negligence (or in your case Fraud) someone has been harmed and has lost health, money, future, etc. In other words, for you, because of the fraudulant action of the investment company (the Civil crime or Tort) you have suffered as a result and the compensation allowed (because they can't jail the offender) is made through fiscal or monetary Specific and General Damages handed in judgement by the relevant court. The matter of Civil Torts are handled seperately to any criminal proceedings this company may face from state or federal police or ASIC.
No secret handshake needed (LOL) just tell Anthony that his mad lawyer mate TC from Sth Oz said to help!
CHEERS!
TCa tort is a civil wrong which may entitle the wronged to sue. It seems the organisers of the scheme probably will have no money or assets from which to recover money so even if you win you won't get any money from them. But it may also be possible to sue others involved such as the banks and the valuers – if they over valued the properties. The valuers are unlikely to have any money, but their insurance companies may cover this.
Best to talk to a lawyer.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Here is his personal email: [email protected]
CHEERS!
TC
.. way before I head read his books unfortunately.
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