Vendor Financed deals … what happens if purchasor breaches contract?

Hi jcz

Just for your information a Residential Lease and a Call Option are used to setup a Rent To Own (RTO).  They can be setup for whatever term is agreed upon and if the tenant/buyer defaults, the  CTTT (NSW), QCAT (Qld) or VCAT (VIC) could be used to enforce an eviction.  Personally we don't like them much as the government doesn't consider that this legal paperwork, constitutes a real sale and consequently doesn't pay the FHOG for a RTO.  Also RTO's are not regulated by the National Credit Code (NCC) and don't give the buyer the protection of this Code.

An Instalment Contract is sometimes called Vendor's Terms.  Utilising this Contract means that eligible buyers can get the FHOG and also get the protection of the NCC.  The NCC stipulates that the default process for a traditional "bank" loan and an Instalment Contract are the same.  Also, both banks and vendor financiers have to abide by the NCC's Responsible Lending requirements.  What this boils down to is that traditional lenders (banks) and vendor financiers have to qualify buyers in the same manner.  For example, a buyer can only be issued with a Default Notice after they have been in arrears for 14 days and the Default Notice must give the buyer 30 days to rectify the default, before further action can be taken.

We write all our Instalment Contracts over 30 years.

When a buyer defaults under a traditional loan, the property is repossessed and sold at mortgagee auction.  Then, if the traditional lender doesn't get enough from the auction, it's very possible that they'll go after the borrower and bankrupt them.  An Instalment Contract is a non-recourse loan.  When a default is not rectified within 30 days, a Notice of Termination is issued but a vendor financier cannot go after the borrower and bankrupt them.

We find that "stuff" does happen in people's lives.  We've had this, i.e. defaults, happen numerous times.  Every time, we have spoken with our buyers/borrowers and worked out what they want to see happen.  Most people in this type of situation only dig their heals in and don't move out because the "stuff" that's happened in their lives, has left them without enough money to move.  We usually supply those missing funds and help the people move on down the road.  So far, we never had a complaint, as is the case with the vast majority of vendor financiers.

Today we approved a purchaser for a property in Quakers Hill, Sydney.  This purchaser did the correct due diligence and paid for a valuation by a licensed valuer.  I was told the valuation came back "spot on" and the sale is going ahead.

Cheers,  Paul

Hi jcz

When we get our statements from our Direct Debit service provider, our income is declared, on the statements as "Investment Property Income".  We have always found this positive cash flow position has improved our serviceability calculations.  Within limits that is.  You've always got to be aware of not having too much exposure to one Lenders Mortgage Insurer but the excellent mortgage brokers on this forum will be able to protect you from that.

Cheers,  Paul