TRIBUNAL RULES WRAP CONTRACT "UNJUST"

4th November 2005

TRIBUNAL RULES WRAP CONTRACT "UNJUST"
Hope for thousands of wrap victims.

A recent decision by the Consumer, Trader and Tenancy Tribunal [NSW], has created real hope for battlers caught in wrap finance contracts.

In a case that could describe thousands of wrap contracts, a young couple were refused housing finance by traditional lenders. A wrapper then offered the couple vendor-finance.

It was the standard wrap deal of an inflated property price plus an inflated interest rate and, the biggest trap of all, that the title of the property remained in the name of the wrapper.

The couple signed a contract agreeing to pay 300 monthly payments of $1,755 to the wrapper.

The reason most buyers are refused a loan by traditional lenders is because they lack the capacity to meet repayments. Under a wrap contract, with loaded payments, it is even harder for buyers to pay.

In this case, the loaded payments slowly crushed the young couple. They fell behind.

Now, this is what wrap spruiker Steve McKnight calls an "opportunity". When wrap buyers get behind, the wrappers can take the house back and keep all the money paid by the buyers - the deposit, the loaded payments, any improvements plus all the equity.

The wrapper told the young couple to get out.

But, unlike so many wrap buyers, this couple refused to be intimidated. Having struggled for 137 weeks and having handed over almost $60,000, the dream of owning their own home was replaced by the reality that they had been caught in one of the most common scams in property - wrapping.

They took their case to the Tribunal and argued, among other things, that "wrap contracts operate unfairly because they provide the purchaser with no equity in the property or an opportunity to regain instalments on termination."

The Tribunal agreed, saying, it had "a feeling of unease" about "the draconian provisions" of the contract.

As for the loaded payments, the Tribunal said, "It was inevitable that they would fail, the only real surprise being how long they managed to keep making their instalment payments before they did fail."

The Tribunal ruled that "the transaction at the time it was entered into is unjust, it must be reopened." The wrapper was ordered to pay the buyers almost $30,000 in compensation.

A Victorian lawyer said last week that most wrap contracts in Australia would be similar to the contract that the NSW Tribunal found to be unjust.

So, for thousands of wrap victims, there is real hope.

The days of ripping off battlers in wrap deals could be coming to an end.

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This news article was taken from the News page of the Jenman website.



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