Elizabeth and Philip’s lender issued a Property Law Act (PLA) notice on their residential property (the property), which was due to expire on 3 May 2017. Philip had fallen ill and he and Elizabeth fell behind in their loan payments.
Elizabeth and Philip complained the lender had not acted appropriately or in accordance with the unforeseen hardship sections of the Credit Contracts and Consumer Finance Act 2003 (CCCFA), when Philip fell ill.
On 7 April 2017 FSCL opened an investigation of a complaint received from Elizabeth’s father George. Elizabeth and Philip had asked George to pursue their complaint for them.
When George complained to us, he was under the impression Elizabeth and Philip had only missed one loan payment and that the PLA action was out of proportion with this.
Hardship relief provided
From the lender’s file, it appeared it had provided Elizabeth and Philip relief by:
a) Allowing the loan account to remain in arrears while Philip was awaiting payment under an income protection policy in 2015.
b) Consolidated arrears and legal costs, reduced the interest rate by 1.1%, and capitalised the arrears in a re-documented loan drawn down on 20 December 2016. This was after Elizabeth and Philip said they were looking to refinance the loan and would require 6 months from September 2016 to arrange this. When Elizabeth and Philip did not refinance or make adequate payments on the loan, the lender issued the PLA notice on 28 March 2017. The total amount to pay under the PLA was $90,500.
George’s response
Upon reviewing the information from the lender’s file, George agreed its actions had been appropriate in the circumstances.
George also advised us he originally owned the property. Because Elizabeth was due to inherit the property under George’s will, George decided to gift the property to Elizabeth and Philip so they could use it as security for the loan. The purpose of the loan was to fund Elizabeth and Philip’s start-up business in Australia.
It was intended that the business income would pay the loan instalments, and George would receive the rental income being generated on the property and pay the costs of the property’s upkeep. George had continued to receive the rental income, along with his pension. Clearly George wanted, if at all possible, to avoid the property’s sale.
Our review
We considered that the lender had provided reasonable hardship relief and suggested the complaint be discontinued.
As we saw it, there were the following options for the family:
a) They raise funds to pay the debt by 3 May 2017, possibly by refinancing with another lender.
b) The PLA notice was left to expire, with the property being mortgagee-sold.
c) The lender, George, and Elizabeth and Philip, enter into a negotiation for a repayment arrangement.
d) The family take urgent action to sell the property themselves which could result in a higher sale price than if the property was mortgagee-sold.
The family’s next steps
After we issued our preliminary view on the complaint, George and Elizabeth and Philip could not agree on what their next step would be to try and clear the arrears. Elizabeth and Philip then revoked their authority for George to pursue their complaint on their behalf, and asked that FSCL and the lender communicate no further with George. Elizabeth and Philip also said they did not accept the lender had treated them fairly.
Elizabeth and Philip were then able to secure finance to clear the arrears however, in the days leading up to the settlement date, they questioned a difference in the amount stated in the PLA notice and the amount now being sought. It appeared the difference related to the lender’s lawyer’s fee ($1,900).
The lender said since the PLA was issued it had incurred legal fees corresponding with Elizabeth and Philip about the refinance, and with George about options he was investigating to clear the arrears. Elizabeth and Philip said they should not need to pay the costs of the lender communicating with George.
Outcome
The lender confirmed it would write $700 off its lawyer’s fees, and settlement proceeded.
We discontinued our investigation.
Key insights
Parents providing assistance to their children in securing finance can put significant assets at risk if the children default on loan payments. It’s important parents considering gifting assets, acting as guarantors, or loaning children significant sums of money, seek good advice and have a real appreciation of the risks they face if their children default.
