Promised finance does not come through

Hemi had bought land planning to build luxury accommodation and his home. Hemi had already completed the resource consent process, and was engaging architects and engineers, when he was introduced to a finance adviser to arrange finance to complete the project.

The adviser was confident he would be able to secure lending through a main trading bank. In June 2022 Hemi gave the adviser all the information necessary to support the application and continued with his building project. Over the months that followed, the adviser kept reassuring Hemi that the bank was looking favourably on the proposal and gave a variety of plausible reasons for the delayed loan offer.

In January 2023 the broker said that the bank had approved the finance and in February gave Hemi a copy of an email purporting to be from a bank confirming the lending terms. Hemi signed the building contract. However, the finance did not eventuate.

In March 2023 the adviser stopped responding to Hemi and in April another adviser from the firm said that Hemi’s adviser was no longer working for them. When Hemi explained that he had committed to a building project on the strength of the adviser’s advice, the new adviser said there was no record of a lending offer from the bank.

Hemi contacted the bank who said they had never heard of him and had not offered to finance his development.

The new adviser offered to help Hemi find finance, and Hemi again gave the information needed to support a loan application. The adviser warned Hemi that, in his opinion, finance from a main bank would be unlikely but that he should be able to secure non-bank lending.

The new adviser came back with an offer from a non-bank lender of half of the amount Hemi needed for the build. Hemi declined the offer and decided his only option was to cut his losses and sell the property.

Hemi complained to the financial advice firm that the original adviser worked for, saying that the adviser’s poor conduct had cost him about $150,000. The financial advice firm apologised for their adviser’s actions but did not agree that Hemi had lost any money as a result. Hemi complained to FSCL.

Dispute

Hemi said that if he had known he would not be able to get finance to complete the project he would have sold the property earlier. Hemi claimed a total loss of $80,000 which included:

  • rent for the property he was living in while waiting for the development to be completed
  • rates for the development property
  • water rates for the property he was living in
  • accounting costs
  • currency exchange rate loss for money brought into New Zealand for the build, and then returned when the project was cancelled
  • additional consent costs at the council
  • bank account charges
  • purchases made for the build.

Hemi also said he had wasted time and had lost the property’s future increase in value as a result of the adviser stringing him along.

The adviser firm maintained their view that they had not caused Hemi a loss because it was not until April 2023, when the new adviser became involved, that resulted in a loan offer capable of being accepted. The adviser firm also said they had arranged alternative finance with a non-bank lender. Although the offer was only for half the amount Hemi needed, the adviser firm said the non-bank lender would be prepared to lend more once the building project was underway.

Review

We were satisfied that the adviser gave Hemi the firm impression that he was arranging finance, and that a bank had approved a loan, when this was not the case. It was reasonable for Hemi to rely on the adviser’s representations. The adviser strung Hemi along for months, and ultimately presented a fraudulent loan offer.

While the deception would have come as a shock to the adviser firm, because the adviser was working under their licence, they were responsible for his actions.

Although the adviser firm gave Hemi another finance offer, it was not comparable to the offer Hemi believed was being arranged and not enough to pay for the build. We thought it reasonable for Hemi to decline the offer and sell the property.

Resolution

We calculated Hemi’s loss as $36,000 based on our view that if the adviser had told him in July 2022 that he was unable to secure main trading bank finance, Hemi would have cut his losses at this point and sold the property. We included compensation for:

•          rent

•          water rates

•          accounting costs

•          additional consent costs at the council

•          bank account charges.

We did not include:

  • rates, because Hemi would have had to pay rates regardless of where he lived
  • currency exchange rates, because we were not convinced Hemi needed to bring the money to New Zealand until he had building costs to pay for
  • items bought for the building project, because he would be able to sell these items.

We also considered the adviser had caused Hemi considerable inconvenience and disruption to plans, and awarded the most compensation we can award for non-financial loss, being $5,000.

Both Hemi and the financial advice firm accepted our decision, and the complaint was resolved on this basis.

Insights

For some unknown reason the financial adviser promised Hemi something he could not deliver, causing Hemi a financial loss and a considerable amount of stress and inconvenience. Even though the financial advice firm had not caused Hemi’s loss, because the adviser was working under their licence, they were responsible for his actions.