More potential headaches for borrowers

[Rolf Latham]

I Believe that all this stuff has come from...................

"Honest judge, I didnt understand that I would be repoed if I dodnt pay. I thought I was getting a lifetime interest free loan".

Too many people not accepting responseability, and the majority suffers


ta
rolf

 

[coastymike]

Courtesy of Abbott Tout.

Stop Press: Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41

The New South Wales Court of Appeal’s recent decision in Perpetual Trustee Company v Khoshaba [2006] NSWCA 41 reinforces the need for lenders to obtain certain information prior to making a loan advance.

The facts of the case may be summarised as follows:

Mr Khoshaba, who was not an experienced business person and who spoke English as a second language, applied for a loan of $120,000 from Perpetual which was to be secured against his residence. Mrs Khoshaba was later included in the loan application as a joint application, but her signature on the application was found by the Court to have been forged;

the purpose of the loan was to allow the parties to invest in a “pyramid” scheme (this purpose was not disclosed to Perpetual);

the mortgage broker who handled Mr & Mrs Khoshaba’s loan application incorrectly described Mr Khoshaba as working and having an income of $43,000 (he was in fact a pensioner with no income), and also did not list any proposed use for the funds;

the loan was approved by Perpetual, and the $120,000 funds were invested by Mr & Mrs Khoshaba in the scheme, which subsequently collapsed;

an application was made by Mr & Mrs Khoshaba that the loan contract was “unjust” under the Contracts Review Act 1980.

The Court at first instance held the loan contract to be unjust due to Perpetual’s failure to follow its own internal guidelines and for failing to recommend that the borrowers obtain independent legal and financial advice. Perpetual appealed against that decision.

The reasons for the Court of Appeal decision varied from those of the Court at first instance (even though Perpetual was unsuccessful on both occasions), and may be summarised as follows:

Perpetual failed to ascertain the purpose of the loan - this was left blank in the original loan application, and no further inquiries were made by Perpetual prior to the funds being made available;
Perpetual also failed to make any inquiries to verify the income of Mr Khoshaba as stated in the loan application;
The Court felt that Perpetual’s sole concern was whether the security provided would cover repayment of the debt (which it did) rather than the borrowers’ ability to repay the loan;
Had Perpetual made the inquiries in relation to the purpose of the loan and Mr Khoshaba’s income, the outcome of the case may well have been different.
The outcome for lenders is that asset lending (i.e. basing a decision to lend solely on the value of the security rather than the borrower’s ability to repay) may lead to the loan being set aside as “unjust”, and sufficient inquiries should be undertaken to determine the purpose of the loan and the borrower’s ability to repay.

 

[asdf]

The outcome for lenders is that asset lending (i.e. basing a decision to lend solely on the value of the security rather than the borrower’s ability to repay) may lead to the loan being set aside as “unjust”, and sufficient inquiries should be undertaken to determine the purpose of the loan and the borrower’s ability to repay.

What?? Thats the most ridiculous thing I've heard. Thanks for nothing Abbott Tout. I'm assuming they also took this on a "no win no fee" basis. Another fine example of how interpretation of the laws creates yet more burden on our service providers which is ultimately borne by consumers. How do they expect lenders to evolve and improve their services with more processes and red tape? That Contracts Review Act is a joke. Sec 7's application is so broad and gives all the powers back to the 3 blokes sitting up front. Would be interested to find out if the 3 judges who presided over the case own any IPs between them or have any practical finance experience. Not a bad gig really, handing down lender bashing judgements, buying a few approvals along the way, while waiting to pick up whats most probably a 6 figure annual pension cheque. Incidently a slave labour associate will probably have written the judgements - whos fresh out of law school and am 98% sure haven't filled out a home loan application before.

Sorry this stuff makes my blood boil. Its difficult enough for us to process joint and g'tee applications, this latest round will just send Compliance reeling!

 

[johnnyb]

I'm going through a loan application at the moment where I need to get these certificates signed. Apart from the hassle of finding a solicitor and financial advisor who will sign them, I also noticed the following at the bottom of the certificate:

"I certify .....
- the borrower was not present during my interview with the guarantor
...."

That's going to be a bit difficult since I am a borrower as well as a guarantor (since we are using a trust with a corporate trustee)

John.

 

[Joe D]

"I certify .....
- the borrower was not present during my interview with the guarantor
...."

That's going to be a bit difficult since I am a borrower as well as a guarantor (since we are using a trust with a corporate trustee)

John.

johnnyb

I had exactly the same situation on a recent loan.

My solicitor and I just shook our heads at the ridiculous paperwork in front of us.

I also was obliged to have my accountant explain the financial impact to me and provide a declaration on his letterhead that he had done so.

All this simply added another $600 in accountant/lawyer fees

 

[johnnyb]

johnnyb

I had exactly the same situation on a recent loan.

My solicitor and I just shook our heads at the ridiculous paperwork in front of us.

I also was obliged to have my accountant explain the financial impact to me and provide a declaration on his letterhead that he had done so.

All this simply added another $600 in accountant/lawyer fees

So your solicitor still signed the form even though it included a condition that was impossible to satisfy? The extra cost is the least of my worries. I just hope that when I turn up at the solicitor's office he sees the funny side, rather than refusing to sign it.

I think I'll concentrate a bit more on growing my wealth using shares and managed funds after this property purchase is out of the way - far less hassle

John.

 

[Raddles]

HI guys
we had a lot of this similar paperwork on our last loan application - and also the JP witness had to give their address so the lender could verify that the JP actually physically saw the borrower (who had to provide some form of photo ID)
We also had the financial/lawyer certificates to sign - we refused to do so and gave our reasons i.e. I am a legal practitioner and have been working with the following firms - I do not need a fellow practitioner to explain the documents to me. My co-director does not need independent advice and the effect of the documents have been explained.
We are well aware of the financial implications of what we are doing and have consulted ... Accountants etc ... to achieve our goals.
The JP also refused to give his address.
We sent the documents back and waited - because we were in the situation where we were refinancing and not having to deal with a time limited settlement - we persisted until we had submitted the documents we wanted. We queried everything - including the mortgagee's solicitors cost agreement and also got a reduction on the bill.
The message guys is - ask questions - lots of them - don't just accept it - most of these mortgage documents are prepared by clerks and the solicitors in the firms never see them. If you all start objecting - perhaps the banks will change their protocol.
thanks