‘We Buy Houses’ puts consumers at risk

Consumer Action Law Centre is warning consumers about schemes which link up people who are desperate to sell their homes with people who are looking to buy but are unable to get a loan.

‘These types of transactions are usually “rent to buy” or “vendor terms” mortgages and are very different from traditional home loan arrangements. These deals have raised risks for buyers in the past, and it would seem some sellers are also experiencing problems,’ said Carolyn Bond, co-CEO of Consumer Action.

‘The sales are often facilitated by a middle-man who introduces the parties and coordinates the contracts, and are advertised on the internet or light posts with slogans such as “we buy your home fast” or “buy a house without a bank loan.”

The deals involve complex “vendor finance” agreements where a  buyer agrees to move into a house and make regular payments until the agreed  purchase price is paid off or they are able to secure a home loan to repay the  vendor in full.

If the buyer defaults, they lose all of their repayments and have no claim  over the property.

In one recent case, CALC said a buyer forfeited all the money she paid into  the scheme, as well as the first home owner’s grant that was used as a deposit,  when she could no longer afford her payments less than a year after signing the  agreement.

These transactions can be risky and some consumers may not be protected by consumer credit laws. The houses may be overpriced, repayments high and, unlike a traditional mortgage, the buyer’s name is not put on the title of the property until they have purchased the house outright.

If the seller has a mortgage to a bank and is in financial trouble, which some are, the bank may foreclose and all the money the buyer has invested into the property is lost.  Even credit card or other debts could lead to forced sale of the home leaving the buyer high and dry.

Vendors, who remain legally responsible for the property, may have to accept  a below market price for their home or receive little or none of the monthly  payments beyond what it takes to cover the mortgage. They also lose any right to  future capital growth.

Ms Bond said there were also issues for sellers and that they may be better off selling their house through more traditional methods.

‘A sale could take longer to settle than you think and may not be the answer to the financial problems many sellers are facing. People in financial difficulty should seek independent advice from a financial counsellor.  If you’re thinking of buying or selling through one of these arrangements you should get legal advice from a lawyer of your choosing – not one who is recommended by someone involved in the deal.

‘Consumers should be very wary of people telling them that these deals are a great way of selling a home fast or building a positive credit history.  We suspect that the middle-man might be the only one to benefit in some of these deals,’ said Ms Bond.