Sent to Choice Online:
In response to your article Rent to Buy Crackdown. By Katrina Bray
From the Vendor Finance Association of Australia
The brand that you have built up over many years through your choice magazine and now your online publication is expected to be factual content and give consumers a truthful portrayal of what it is that you are reporting on.
There has obviously been very little effort on your part to actually contact anybody who runs a vendor finance or rent to own business or the Vendor Finance Association to get your facts in line with common practice.
Consumer protection clamps down on dodgy operators is inflammatory and far from the truth when talking about anybody dealing with Lease Options in Western Australia. A closer look at the actions that Consumer Protection Western Australia has taken against people who have been operating Lease Option Businesses has had nothing to do with the legal paperwork called a Lease Option. Consumer Protection Western Australia has taken these operators to court over infringements with the Australian Consumer Law relating to advertising, content of websites and signage used to attract both sellers and buyers for their properties.
What is a rent to buy scheme
You have written in your article that Lease Option Businesses target people with low incomes, unemployed or people with poor credit history. This is actually far from the truth. Logically, if you are selling a commodity as expensive as property to a person why would you choose somebody who cannot afford the weekly payments. I think you will agree, that just does not make sense.
You assert in the article that the unemployed are targeted by Lease Option Businesses. This is absolutely ridiculous as why would you put somebody in your house who has no job and therefore no way to pay the weekly payments or to get a loan down the track to buy the house. When the idea is to sell the house on a payment plan for profit, you put in people who have jobs and can afford the payment. Lease Options usually run for periods of 5 to10 years and unless the person would be able to get a bank loan within that period, it makes no business sense to put them in your very expensive property. This is not common practice as you assert in your article.
People on low incomes deserve an opportunity to own a home just like everybody else dollars but unless they can clearly afford the payment then it does not make business sense to put them into a property whether it be on a loan situation or on a Lease Option situation. People who run Lease Option Businesses either own the properties or have a substantial financial interest in the property. If you put people into your property who cannot afford the payments then you’re stuck with making the payments yourself that is not the idea behind a Lease Option.
Not everybody with a poor credit history has a poor income. There are many people out there who have forgotten to pay a bill of some sort here in there and are totally unaware at the time of applying for a loan that they even have anything on their credit report. Unfortunately it is not possible for these people to get a bank loan, not due to affordability but due to the fact that they forgot to pay the bill somewhere along the line and they don’t know about it. For instance, tenants are often shoved from house to house as landlords choose to sell the property underneath them, and all it takes is for that person to forget to notify all the necessary people that they have shifted house. The bill is set to the old property, which is thrown in the bin by the person now living there, and that bill is then relentlessly pursued through the system without the knowledge of the person that the bill was intended to reach. This person then has a bad hit on their credit which would, if over approximately $250, preclude them from getting a bank loan with any of the lenders in Australia at the moment except for high interest rate lenders.
If they have a suitable income to easily afford the payment to purchase a property then why should they not be allowed to do so.
Under the heading – What are the potential issues with rent to buy schemes?, you list issues that apply not only to people using Lease Options to purchase a property but also people who borrow money from the bank to buy their homes. If you get a very high LVR loan from the bank and failed to make payments, what is the bank going to do, it forecloses and because there was very little equity there in the first place you will lose every bit of money that you have put into the property along the way. This is a common problem with high LVR loans with banks as well when people fail to meet their payment obligations.
You assert that the people who purchase properties in this fashion using Lease Options are charged far more for the property than is actually worth. In some instances this may be the case, however it is common practice for people who make properties available under Lease Options to make them available at a fairly competitive price to the market otherwise the market would not pay the price. The price for a house made available on a Lease Option should be priced at today’s price, not a price sometime in the future. It is up to the buyer to have a look at all the other properties similar in the area that are for sale, and I mean for sale and conventional means, and check that the price that they are looking at is a fair and reasonable price for the house. If they believe the house is too expensive they do not have to buy it.
There have been many times in recent history when the prices of properties have dropped by as much as 15% and people who have bought at the higher amount have found themselves sitting on a house that is worth less than they paid for the short time ago. And unless you have to sell the property at that moment in time what it’s worth usually does not matter. After a while the property prices will go up again as they generally do and people who do not have to sell don’t really care what the prices are doing as long as they have their home.
You assert that people are misled into believing they are joint owners of the home, whereas if they got legal advice as is recommended, they would know that they are renting the property, and are able to purchase the property at a later date prior to the expiry period in the option.
There is no requirement in the law for a person selling a house on a Lease Option to actually own the property. The person selling the house on the Lease Option must have the right to purchase the property themselves for a longer period of time than they are offering the person that they are putting into the property as the eventual buyer. This is common practice in the industrial and commercial sector and has been for many years.
Under the heading home sellers also in danger you make it sound as if something is being done that should not be done. Yes, people that run a Lease Option business look to acquire their properties on Lease Options from people who are looking to sell their properties, there are usually no fees and there are definitely no commissions involved in the Lease Option business taking control the property from the seller. Quite often the sellers are in a position where they cannot use the real estate agent system to problems such as a lack of equity to sell or timeframes that do not suit the agent system. People have the right to sell the property the way that they see fit and if what the Lease Option business is proposing fits for them they should be allowed to make the decision to sell the property in that fashion. Once the Lease Option business has control of the property they do sublet the property to the eventual purchaser who makes their payments over a period of time and then during that period they can purchase the property at any time by getting a bank loan and paying for the house.
The actions that Consumer Protection Western Australia have taken, have had nothing to do with the actual contractual legality of Lease Options and the use of Lease Options in Western Australia. Consumer Protection Western Australia have attacked these businesses using the Australia Consumer Law as their vehicle. Consumer Protection Western Australia have used heavy-handed tactics unnecessarily to change the advertising that Lease Option Businesses have used.
They did not choose to issue advertising guidelines for Lease Option Businesses, they did not choose to contact the Vendor Finance Association and seek assistance in letting Lease Option Businesses know what advertising strategies they would like to see changed. That would have made sense, and save the WA taxpayer hundreds of thousands of dollars that could have been better spent elsewhere.
Vendor Finance Association