Originally posted by michaelg
It is my understanding the powers that be may use the Consumer Credit Code as a means of regulating all forms of vendor finance (lease/option license to occupy, etc).
Well, maybe I'm missing something (most likely), but Vendor Finance is one of those misnomers which, through common but innacurate useage, starts to be accepted at face value.
Vendor Finance is not finance at all.
It simply describes the process whereby someone who owns something - in this case, property - decides to sell and instead of receiving full payment of the agreed amount at settlement when the possession of the property, the right to receive rents and profits, and the acceptance of title, pass to the purchaser.
Vendor Finance means that that settlement is delayed - two years, twenty years, whatever - and in the meantime the title stays with the owner and the 'rent' paid by the purchaser imust be more than the owner's mortgage payments (if any) and must be applied in a certain way.
The Vendor does not advance funds to the Purchaser, even if the Purchaser exercises their right under the Sale of Land Act and request a 'mortgage back' where the title changes hands, the purchaser becomes the registered proprietor, and the terms, conditions etc of the payment arrangement continues as before except this is now a registered mortgage between the two parties.
'Mortgage Back' would most likely present a real problem to most 'wrappers' (people who have bought to sell in the short term) but would not present a problem to long term owners. However, the law provides that the Purchaser may request this of the vendor and that the vendor must not refuse. (Think about how this would effect you as a 'wrapper'.)
As no money is advanced / lent / choose your description, how can 'Vendor Finance' be considered 'finance'? It is terms acepted by the vendor, nothing more nor less than that.
It is simply an extended settlement period, and has been around since Adam was a boy!
Personally, I see this sort of deal as a business tactic and not strictly as 'investing in Real Estate'.
When I first started in Real Estate the Banks would not lend on vacant land at all, so we sold just about everything on Vendor's Terms. The Vendors were huge corporations, not individual owners, but we also occasionally sold a few rather crummy houses on vendor terms because the properties were in such poor condition that the Banks would not accept them as security.
The owners (vendors) would then discount (on-sell) the Contracts so that they would have the cash to go out and do it all again!
During the 1970s some huge fortunes were made - and lost - by speculative traders working in this way.
Please note that my Agency did not own any of these properties. We were independent Estate Agents and worked throughout Melbourne and all over Victoria, including coastal and rural areas, most of which are built up areas today.
However, vendor terms was not finance then and is not finance now!
Cheers
Kristine
